Lead paint is a leading cause of death in young children, but will and can affect adults as well.
I would call and talk to them about it. It may be that you have an inexperienced person who wrote that. Where does it "state" that, on the appraisal????
I do know that FHA is extremely picky about peeling paint. Make sure whomever you hire to do the job removes every speck of chips from the ground and disposes of them properly. Anything that is left on the ground from the scraping could also stop the closing. Crazy but true.
If you are a first time buyer you may want to look into Landmark Credit Union...they were offering a first time buyer program with 3% down (similar to FHA) but none of the FHA headaches.
I had a recent purchase undergo the same peeling paint issue. We did not have to use a certified painter...that must be specific to your lender.
Your appraisal should have stated that there was peeling paint it would not state how it needed to be corrected.
It may be possible to switch lenders.