The Consumer Product Safety Commission (CPSC) reached a $1.25 million settlement with RC2 (RCRC), the Illinois-based toy company that makes Thomas the Tank Engine and other highly-popular toy lines. The settlement pertains to the company's 2007 recall of an estimated 1.7 million Thomas the Tank Engine toys that were deemed to contain lead levels that exceeded the legal limit.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%The 2007 recall, which included 25 separate Thomas toys, dealt a brutal public blow to RC2. The company is heavily reliant on the sale of toys it makes for small children. Among its brands are ERTL, Learning Curve, and Johnny Lightning, and the company is the licensed manufacturer of Sesame Street, Winnie the Pooh, Bob the Builder, and Thomas toys. Although the recall only affected a small portion of the company's products, it was a public relations disaster.

Some CPSC staffers claimed that RC2 was aware of the dangerous levels of lead in its products. RC2 continues to deny those allegations, asserting that it was unaware that its toys violated federal law.

In response to the May 2007 recall, RC2 quickly instituted a "Multi-Check Safety System." The program then failed to identify a second batch of lead-contaminated Thomas toys that the company subsequently had to recall in September 2007.

While the company's Multi-Check Safety System touts "tougher certification," "increased random inspections," and "zero tolerance for compromise on RC2 specifications," the only concrete policy change seems to be "mandatory paint control procedures for contract manufacturers, including certified independent lab test results of every batch of wet paint before the paint is released for production." While this paint control program might have helped identify the tainted Thomas toys, it isn't sufficient enough to catch a wide variety of other potential pitfalls.

The government has been a bit more proactive. The tainted Thomas toys violated a 1978 CPSC rule that prohibited the residential use of paint that contained more than 0.06% lead by weight. The scandal led to tougher child safety guidelines, increased enforcement, and harsher penalties. In August 2008, President Bush signed the Consumer Product Safety Improvement Act into law: in addition to lowering the permissible level of lead to 0.009% by weight, the CPSIA set limits on three other chemicals that may be linked to a variety of childhood diseases. It also established mandatory testing of childrens products and established civil penalties that include jail time and fines of up to $15 million.

While the new rules may be devastating to manufacturers of tainted toys, the announcement suggests that the government is still taking it easy on RC2. In addition to its surprisingly low penalty of $1.25 million, RC2 couldn't ask for better timing for the agreement. After all, a pre-holiday release of the settlement would have poured fresh salt on the scabbed wound of two years ago; by announcing after Christmas, the government spared RC2 what might have been a brutal blow in an already depressed holiday climate.

RC2 did not return calls seeking comment.