The fallout from the lead contamination crisis that rocked the toy industry two years ago – culminating in Mattel Inc. recalling about 2 million items made in China – is striking fear through Los Angeles’ many toy companies.

They are concerned because they now face civil penalties more than 12 times higher than in the past if their products are found to be contaminated by lead or a chemical used in plastic. Also, new regulations call for criminal charges – which could put toy executives in prison.

As if that weren’t enough, the toy companies now face stringent and costly labeling requirements, plus inspection delays at the ports.

In a settlement announced June 5, Mattel and its Fisher-Price subsidiary agreed to pay a $2.3 million penalty for importing and selling toys with hazardous levels of lead. That got the attention of L.A.’s toy manufacturers because it was the largest fine ever imposed by the U.S. Consumer Product Safety Commission on a toymaker.

“It is significant because it’s the first major penalty imposed under the Consumer Product Safety Improvement Act,” said Alex Epand, a partner in the downtown L.A. office of Nixon Peabody LLP who advises companies on federal consumer safety regulations. “Companies can look to it as a benchmark as to what kind of penalties will be assessed in the future.”

The record fine was also a way for the commission to make an example of the El Segundo toy giant.

“This was the commission’s opportunity to send a message to every manufacturer,” Epand said.

Under updated regulations, the commission’s civil penalties were raised from $8,000 to $100,000 per violation. The regulations also increased criminal penalties. A conviction could result in five years in prison and forfeiture of assets associated with the violation.

That means a toy importer who was found to have violated the new rules three times may have to pay a fine of $300,000, up from $24,000. And he may be sent to prison for up to five years.

Also, the commission doesn’t have to prove that company executives knew of any violations before they are hit with criminal charges.

The new regulations also let the commission force the company to give customers refunds, repairs or replacements of recalled products.

Los Angeles has a high concentration of toy companies, from the big ones such as Mattel and Jakks Pacific Inc. to smaller shops. The Central City East Association puts the number of toy companies in downtown’s Toy District at 500.

The costs are being felt across the industry.