Federal and State Lawmakers Target AI-Powered Children's Toys as Market Explodes

Bipartisan legislation targeting AI-powered children's toys is gaining momentum in both federal and state legislatures, even as the market for such products continues rapid expansion globally. U.S. Rep. Blake Moore (R-UT) has introduced the AI Children's Toy Safety Act, which would make selling or manufacturing toys that incorporate chatbots a violation of the Consumer Product Safety Act. The bill would prohibit companies from making, importing or selling toys or childcare products that incorporate AI chatbots.

Parallel efforts are underway at the state level. California State Senator Steve Padilla introduced Senate Bill 867, a 4-year moratorium on the sale and manufacture of toys with AI chatbots embedded. These legislative moves come as Wired reports over 1,500 AI toy companies were registered in China by October 2025, and major manufacturers continue pushing into the space.

Market Momentum Despite Regulatory Pressure

The timing of the legislative push coincides with significant commercial activity. Sharp put its PokeTomo talking AI toy on sale in Japan in April 2026, while Huawei's Smart HanHan plush toy sold 10,000 units in China in its first week. Mumbai-based Miko claims to have sold more than 700,000 units of their AI toy products globally.

Major toy manufacturers are doubling down on AI integration. Mattel announced it is teaming up with OpenAI, which created ChatGPT, signaling that established players see AI as core to their product roadmaps rather than a passing trend.

The products under scrutiny span a wide age range. AI toys tested by consumer advocates include products marketed to kids as young as 2 years old and are generally powered by AI models like OpenAI's ChatGPT, according to reporting by the Associated Press.

Regulatory Response Across Multiple Agencies

The Federal Trade Commission has opened multiple fronts in its oversight of AI toys. The agency is issuing orders to seven companies that provide consumer-facing AI-powered chatbots seeking information on how these firms measure, test, and monitor potentially negative impacts of this technology on children and teens.

The FTC has already taken enforcement action, moving against robot toy maker Apitor Technology for allowing collection of children's data without parental consent. Apitor Technology failed to notify parents and obtain their consent before collecting geolocation data from children as required by COPPA.

The Consumer Product Safety Commission has also engaged with the issue. The CPSC held an Artificial Intelligence and Machine Learning Forum in March 2021 and published a technical report titled 'Investigation of Smart Toys and Additional Toys through Child Observations' on October 10, 2024.

Current CPSC testing and certification requirements for toys apply only to products designed primarily for children 12 years of age or younger under the mandatory ASTM F963 consumer product safety standard.

Industry Scrambles to Address Concerns

Facing regulatory and political pressure, some manufacturers are implementing technical controls. Miko announced it is adding an AI on/off toggle option to enable or disable the conversational AI features of Miko 3 and Miko Mini toys. The company added the AI off switch after political pressure and probes of their products.

However, the move has not satisfied critics. Senator Blackburn stated that Miko's new parental controls are an eleventh-hour attempt to save face following a cybersecurity breach that exposed sensitive data involving children to the public. Miko CEO Sneh Vaswani has stated that the company had not leaked users' data and does not store children's voice recordings.

The Toy Association is working with member companies and outside counsel to develop voluntary AI guidelines specific to the toy industry. The trade group will host its 2026 DC Fly-In and Annual Day of Play on Capitol Hill from June 9 to 11, with leadership scheduled to meet with Administration officials and members of Congress in Washington, DC on April 6 to 7 to address AI priorities on behalf of members.

Broader Context and Cultural Moment

The regulatory focus on AI toys reflects broader concerns about AI systems interacting with children, but it also arrives at a particularly visible cultural moment. Toy Story 5, scheduled for theatrical release in summer 2026, features a green, frog-shaped kids' tablet named Lilypad as the main antagonist — a narrative choice that may amplify public awareness of the issues lawmakers are targeting.

We have seen this pattern before, when regulatory attention follows technology adoption curves with a lag time that often spans years. The mobile app ecosystem faced similar scrutiny around children's data collection and inappropriate content after smartphones had already become ubiquitous in households. The difference here is that lawmakers are moving while the AI toy market is still in its expansion phase rather than after widespread adoption.

Child advocacy groups are pushing parents to avoid these products entirely. Fairplay children's advocacy group published an advisory urging parents not to buy AI toys during the holiday season, signed by more than 150 organizations and individual experts.

Looking at what this regulatory attention means for the industry, manufacturers face a complex landscape where technical capabilities are advancing faster than policy frameworks. The current legislative proposals would effectively halt a category that major manufacturers like Mattel view as strategically important, while international markets — particularly China — continue rapid development of AI toy products.

The outcome will likely determine whether AI toys follow the path of other regulated children's technologies, where compliance costs and legal constraints shape product development, or whether the category faces more restrictive limitations that fundamentally alter its trajectory.