Who doesn’t like getting a printed coupon at the checkout that’s triggered by an item you purchased? Or a personalized price for an item you frequently buy?
But what if someone else gets a discount and you have to pay more because of your age, or your gender, or your income level?
There’s a fine line between the type of personalized pricing and promotion that’s accepted and appreciated, and the type that seems unfair and unwelcome. It’s the difference between “algorithmic pricing,” as proponents prefer to call it, and “surveillance pricing,” as opponents have branded it.
So one state is defending a first-of-its-kind effort to inform consumers when their personal information – whether innocuous or invasive – is being used to set the prices they pay.
The state of New York has filed its first formal response to a legal challenge that seeks to invalidate a new law that would force physical and online retailers to disclose when they’re using algorithmic pricing to determine what they charge you.
In a legal brief filed in federal court this week, New York Attorney General Letitia James urged a judge to dismiss a complaint brought by the National Retail Federation against what she called New York’s “groundbreaking consumer protection statute,” the Algorithmic Pricing Disclosure Act.
“The Act does not restrict the use of algorithmic pricing,” she pointed out. It merely “requires companies to post a clear and conspicuous notice” when they use personal data to set prices, in order to “help consumers make informed decisions.”
The act was signed into law back in May and was due to take effect earlier this month. Some businesses, like Uber Eats, have already complied, as shown above. But the state paused enforcement of the law after the NRF sued.
“NRF members use algorithmic pricing to help their customers discover products, save money, and enjoy a personalized experience,” the trade group stated in its federal lawsuit. “They accomplish this by using customers’ purchase history, the items in their online shopping cart, their zip code, and other information that customers voluntarily share.” There is “nothing to suggest consumers are deceived, confused, misled, or harmed by algorithmic pricing,” the NRF argued.
While an earlier proposed version of the law would have regulated and restricted algorithmic pricing, the version that passed does not. As James pointed out, it simply requires retailers that offer variable pricing to post “a clear and conspicuous disclosure that states ‘THIS PRICE WAS SET BY AN ALGORITHM USING YOUR PERSONAL DATA.'”
The NRF sued on First Amendment grounds, saying its members should not be forced to display a message “with which they disagree.”
The required signage “appears based on a speculative fear that retailers use sensitive data to discriminate and price gouge — practices the law already prohibits,” the NRF lawsuit reads. Algorithmic pricing merely helps to automate and make more efficient a process that retailers have used for years, the lawsuit explains. “A grocer, for instance, may offer a coupon at checkout for items similar to those purchased… coffee shops offer rewards cards giving repeat customers a free coffee every tenth cup.”
The signs, though, “will mislead consumers about the type of data NRF members use to set prices and the effect of personal data on prices… Consumers will naturally but falsely conclude that an NRF member relied on sensitive personal information (e.g., age, gender, race, credit score, income level, specific geolocation) in setting the price,” and will “naturally but again falsely conclude that the NRF member used this information to increase the price offered.”
“Although the state is free to express its opinion that algorithmic pricing is dangerous, it cannot force businesses that disagree to do so,” the NRF’s argument concluded.
While New York’s law doesn’t ban the practice, other states would like to. California, Colorado, Georgia, Illinois, Massachusetts and Vermont are among the states that have proposed bills this year to regulate what they refer to as surveillance pricing. And Democratic Congressman Greg Casar of Texas has just become the first federal lawmaker to propose regulating the practice nationally.
“You may already be getting ripped off by corporations using your personal data to charge you more,” Casar said in a statement after introducing his “Stop AI Price Gouging and Wage Fixing Act” last week. “This problem is only going to get worse, and Congress should act before this becomes a full-blown crisis.”
Casar’s office insists that his bill “does NOT prohibit companies from offering discounted prices to people enrolled in loyalty programs.” Instead, it’s aimed at more opaque and troublesome pricing decisions “like an airline raising prices for an individual after seeing her search for a family obituary, or a ride share app paying a driver less after seeing that she visited a pawn shop.”
The progressive economic advocacy group Groundwork Collaborative is in favor of more regulations, before pricing practices like Casar’s examples become more commonplace. “If lawmakers don’t get their act together and really think about regulating this space, we could be facing a world in which there is no standardized pricing,” Groundwork Collaborative Executive Director Lindsay Owens warned in a recent interview. “You have no idea what anything costs, there’s no predictability, and all prices are set according to your desperation and your individual ability to pay.”
She cited a poll her group conducted, in which 83% of Americans said everyone should be offered the same price for the same item. “There is no such thing as a good deal when every consumer is charged a different price,” American Economic Liberties Project Senior Legal Counsel Lee Hepner said in a statement of support for Casar’s bill.
The National Retail Federation says algorithmic pricing is far more likely to be used to lower prices than to raise them – to reward loyal customers, not to punish others. “Stigmatizing tools that drive prices down turns offering deals into a liability, and consumers will end up paying more,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said in a statement.
Furthermore, the NRF’s Vice President of Legal Affairs Mike Lemon warned, the New York law’s “vague definitions and broad scope may capture even routine loyalty programs and targeted discounts.” As a result, “retailers might shy away from offering personalized discounts, tailored loyalty offers or efficient pricing updates simply to avoid the risk” of violating the law by not properly disclosing them.
The state contends those concerns are overblown. While the NRF is asking the judge to invalidate the law as unconstitutional and permanently prevent its enforcement, New York says merely directing retailers to post a sign making “factual and uncontroversial disclosures” is far from a First Amendment violation, and the only thing retailers object to is what they imagine consumers will think when they read it.
It will be up to the courts to sort it out. Anyone who’s signed up for a store’s loyalty program or has uploaded a receipt to a rebate app knows that you have to give something to get something – you need to share some personal information if you want to get personalized deals. Retailers insist there’s nothing wrong with that, while opponents worry it could lead to discrimination. As both sides in this case battle it out in court, it will ultimately be up to shoppers to decide whether getting that personalized deal is worth the price.
