Peloton Interactive Inc. fought to become a breakout star in the at-home fitness industry. It didn’t back down when the Consumer Product Safety Commission first warned the public to stop using Peloton’s treadmills.

The exercise-equipment maker initially resisted the regulator’s request to recall the treadmills after the death of a 6-year-old child who was pulled under one of the machines. In April it called the public warning “inaccurate and misleading.” After three weeks of public pressure, however, Peloton relented and apologized. The two sides are still in talks about what fixes should be made to the treadmills.

The Peloton flap shows how complicated, slow and messy a recall can be when the agency charged with protecting U.S. consumers from dangerous products concludes one of the 15,000 items it oversees is unsafe. How this will work in the future is the subject of intense debate in Washington, D.C., with implications for consumers and companies across the U.S.

CPSC staff, after an investigation, concluded that the Peloton Tread+’s streamlined design, substantial height and lack of a rear guard made the machines riskier than an average treadmill.

Photo: Jeenah Moon/Bloomberg News

Companies currently have the power to resist a CPSC recall request and negotiate, while reviewing any public disclosures around a believed product defect. Companies and their lawyers call the review requirement an essential safeguard against any hasty and potentially inaccurate claims from the CPSC, which oversees everything from flammable fabrics to golf carts. Some CPSC commissioners and lawmakers would like the government to have more power, while others in Washington say the commission could simply do a better job of wielding its power effectively.

“It’s an excruciating dilemma,” CPSC Chairman Robert Adler said of cases where companies and the agency are at odds over a product recall. “People are saying, ‘You’ve got to alert the public and do it immediately,’ and the company is saying, ‘If you issue your warning, we’ll sue you and you won’t be able to put out anything for quite a while.’”

Peloton said it is cooperating with the agency. “We continue to be committed to improving and setting new industry safety standards,” the company said in a statement, declining further comment.

‘Reasonable steps’

Peloton isn’t the first company to resist the CPSC, which has become entangled in yearslong negotiations with makers of strollers to elevators. The CPSC rarely uses lawsuits to compel a recall even though that is a step it is allowed to take. In nearly five decades, the CPSC has sued fewer than a dozen times to compel recalls or force compliance with recall terms. Two of those lawsuits came this year.

“They are relatively laid back in their regulatory approach,” said George Ball, an associate professor at Indiana University’s business school who has spent years researching the CPSC. Because the agency works with companies to initiate recalls rather than forcing an action, Mr. Ball said, “CEOs can play games with the timing. These are discretionary decisions and there is so much financially at stake.”

CPSC was established by Congress in 1972 as part of the Consumer Product Safety Act. It now oversees roughly 15,000 products, from flammable fabrics to golf carts.

Photo: Andrew Kelly/REUTERS

Companies have accused the CPSC of failing to provide companies with clear guidelines to ensure potentially problematic products are safe. Swedish furniture maker IKEA, which in 2016 agreed to recall 29 million dressers after learning that two children had died and others were injured after being crushed by the furniture, said the CPSC needs to update its safety standards and put in place mandatory rules governing the stability of furniture that are “guided by incident data and child behavior.”

Other companies said the agency unfairly cast them as noncompliant. German conglomerate Thyssenkrupp AG said the CPSC put “semantics ahead of real attempts to make consumers safer while conveniently ignoring the facts”—its response to a lawsuit CPSC filed against a Thyssenkrupp elevator manufacturing subsidiary this year. The CPSC wants the company to agree to a formal recall to ensure it takes steps the agency believes are necessary to protect consumers from residential elevator hazards. Thyssenkrupp said the CPSC knows it is already providing free inspections, free hardware and free installations to address any improper installations of elevators by a third party and that the regulator chose not to support this program.

Amazon.com Inc. also has concerns about how it was treated by CPSC, which filed a complaint this year in an attempt to force the retailer to recall products from its website that the regulator believed could be dangerous. Amazon, in a statement, said it is “unclear” why the agency sued “to force us to take actions almost entirely duplicative of those we’ve already taken.” Those steps, it said, included notifying customers of recalled products and issuing refunds. The CPSC called Amazon’s actions insufficient.

The CPSC was established by Congress in 1972 as part of the Consumer Product Safety Act. That law required companies to review proposed language of any recall and to suggest changes. If the company balks, the agency is required to take “reasonable steps” to address its concerns. If the CPSC fails to do so, the company can sue. The CPSC also has the option of threatening to sue a company if it refuses to agree voluntarily to a recall. Regulators of vehicles and medical products—the National Highway Traffic Safety Administration and the Food and Drug Administration—also have to seek a court order to force a recall, although the FDA is allowed to do so unilaterally in the cases involving baby formula and medical devices.

Some who represent companies say these protocols prevent government overreach. “This gives companies some opportunity to comment on the accuracy of the disclosure,” said Chuck Samuels, an antitrust and regulatory lawyer with Washington, D.C.-based law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC.

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Those who want this law changed say it prevents the agency from notifying the public of a defect without a company’s blessing; one Democratic senator and two Democratic representatives have introduced legislation that would remove that review provision. The NHTSA and FDA aren’t obligated to have companies vet their intended statements.

“It’s a terrible law, no other health-and-safety agency is burdened by this,” said Elliott Kaye, a Democratic CPSC commissioner. Mr. Kaye noted the mandate doesn’t prevent the agency from taking unilateral action. If a company wins a suit against the agency, the remedy is for the CPSC to publicly apologize. But staffers and commissioners over the years have largely looked to avoid that conflict, he said.

“It’s totally fine if we get sued,” he said. “But people have become so afraid.”

Peter Feldman, a Republican commissioner, said the prior-review statute doesn’t hobble the CPSC as much as the commission’s reluctance to use the tools it has. “It’s not a gag order,” Mr. Feldman said. “The agency has underlying management issues and a reluctance to make full use of the enforcement tools that are available.”

A duel with Peloton

The Peloton case began in March, when the company disclosed the fatal accident and other injuries. CPSC staff, after an investigation, concluded that the Peloton Tread+’s streamlined design, substantial height and lack of a rear guard made the machine riskier than an average treadmill.

The CPSC spent weeks negotiating with the company while the agency’s commissioners, all political appointees, debated among themselves. Commissioners informally discussed threatening Peloton with a suit, but dropped the idea when two of the four commissioners ruled out the threat of a suit; it never came to a formal vote, according to people familiar with the discussion.

Instead, the agency issued an “urgent warning” in April urging people living with small children or pets not to use the treadmill. The press release included a Peloton statement that called the government’s release ”inaccurate and misleading” and stated the treadmills were safe when users followed safety recommendations, which include keeping children and pets away from the machine.

Sarah Saadoun, right, and her husband Ygal, left, sued Peloton this spring, upset about how the company handled the recall. They said their 3-year-old son suffered third-degree burns in the summer of 2020 when he was pulled under a Peloton treadmill.

Photo: Kholood Eid for The Wall Street Journal

After weeks of public pressure, Peloton agreed to halt sales and recall machines on the market. Its chief executive apologized for how Peloton reacted to CPSC’s initial recall request, and in May the company said a recall of its treadmills would dent revenue and profit.

Now Peloton is working on a resolution that could further divide the commission. Under an interim fix, Peloton will update its software to require a password to operate the machines. The solution, which can be implemented remotely, saves the company from having to re-engineer or destroy machines on the market or in warehouses.

Some CPSC commissioners are open to accepting that as Peloton’s final and only fix; others believe Peloton should re-engineer the treadmills, according to people familiar with the discussions.

One consumer who is upset with how Peloton and the CPSC handled the situation is Sarah Saadoun. Her 3-year-old son suffered third-degree burns in the summer of 2020 when he was pulled under a Peloton treadmill, she said. His recovery required months of procedures, bandage changes and, at times, pain medicines, she said.

She and her husband, Ygal Saadoun, sued Peloton this spring, upset about how the company handled the recall. They are seeking unspecified monetary damages. Peloton has declined to comment about the suit.

“Peloton is a household name, you assume it’s safe,” said Ms. Saadoun, who lives with her husband in Brooklyn, N.Y., “and that there is some sort of government agency ensuring that’s the case.”

Write to Sharon Terlep at sharon.terlep@wsj.com