New State Surveillance Laws Make It Tough for Consumers to Sue

As New York, Maryland, and Connecticut aim to ban retailers from using personal information about consumers to inflate prices, attorneys worry about who is being left out.

Those affected consumers, attorneys say, will have trouble suing because of the ways the range of state legislation has been written.

Bills largely leave enforcement to state attorneys general, and don’t give authority to private litigators, consumer advocates say. Without legislative language authorizing private claims under the new laws, some advocates looking to bring their own cases on behalf of consumers say they face an uphill battle relying on existing statutes without visibility into companies’ practices. If states had worked with the advocates, they could be more effective in tackling the practice, they say.

“An all-hands on deck approach is better,” said Adam Teitelbaum, litigation and consumer protection consultant and former director of the DC attorney general’s office of consumer protection.

States’ Approaches

States have taken different paths to curtail the use of personal data in pricing, sometimes referred to as surveillance pricing.

Companies and retail industry groups have pushed back against language in bills such as New York’s they say would prevent them from using personal data, such as location, age or shopping habits, to lower prices. They say Maryland’s approach—focused on food vendors and including explicit exemptions for promotions, loyalty programs, and other discounts—allows them to use data to better serve customers than legislation passed in other states.

New York took the lead in regulating the practice in November, requiring companies to clearly disclose their algorithms’ use of consumers’ personal information to set prices.

But concerns remained. Lawmakers took a second look at the issue and passed last week a prohibition of surveillance pricing. Gov. Kathy Hochul (D) hasn’t indicated whether she will sign the bill by the end of the year.

“Large corporations are aggressively fighting this bill because they want to be able to profile consumers and charge them different amounts,” Grace Gedye, senior policy analyst at Consumer Reports, said in a statement about the New York legislation.

In May, Connecticut enacted a law that prohibits retailers and third-party delivery services from using personal data to set prices. Other businesses have to disclose when they’ve used a price-setting device to charge more based on consumer data.

“This is a starting point. I’m sure that other states will probably iterate on this just as we iterated on what we were seeing from some of the other states,” Sen. James Maroney (D-Conn.) said.

The state’s approach was in part fueled by reports of companies charging consumers differently for goods and services, sometimes by as much as 20%, he said.

Maroney said lawmakers in the state sought to emulate Maryland’s law, which was the first in the country to ban grocery stores from using surveillance data to set individualized prices.

‘Black Box’ Pricing

Consumer advocates say state legislation would inhibit their abilities to go after the practice.

Grocery stores and other brick-and-mortar retailers are less likely to use data-based pricing techniques than digital retailers and service providers that sell through websites and online apps, said Philip Black, partner at Wolf Popper LLP. But those businesses are likely to have arbitration clauses that would block private parties filing lawsuits, he added.

Finding plaintiffs harmed by surveillance pricing practices has also been difficult, Teitelbaum said, as attorneys face an imbalance in information about how companies dictate prices.

“Because it’s a black box, you actually don’t know if you’ve been harmed by the practice,” he added.

That makes strong state laws important to ensure fairness in the marketplace, said Stephanie Nguyen, a former Federal Trade Commission official now at the Columbia Law School Center for Law and the Economy.

“We need clear, public, all-in prices available to customers in different markets,” she said.

In the meantime, some plaintiffs’ counsel said they will lean on existing unfair, deceptive, and abusive statutes to go after surveillance pricing.

Offering Discounts

Some businesses have fought against proposals to regulate the pricing practices, claiming fears about surveillance pricing are overblown and misunderstood.

Members of the National Retail Federation, for example, say they “don’t use this data to surveil or monitor their customers and set individual prices at that granular level,” said Jason Straczewski, association vice president of government relations and political affairs.

Industry groups and companies including Instacart have argued far-reaching bills would limit businesses’ ability to use consumer data to lower prices and offer discounts.

“The concern is that we have these overly broad bills that won’t just target the specific harm that legislators identified, but will also impose strict regulations on how businesses can offer discounts,” said Drew Ambrogi, policy manager at the Chamber of Progress, a tech industry trade group.

Colorado Gov. Jared Polis (D) cited those concerns when he vetoed a surveillance pricing ban last week.

In a June 2 letter,Polis said he was “troubled by the broad approach taken by HB26-1210 and worry about discouraging perfectly acceptable uses of technology to set an appropriate price or wage, or the use of technology to save consumers money through discounts that may not exactly fit within the bill’s definition of an acceptable discount.”

Maryland also narrowed its original proposal to only ban practices that raise prices, exempt smaller grocery stores, and require the state’s attorney general allow companies to change illegal pricing practices before facing enforcement actions.

Companies such as Instacart and Uber, meanwhile, are lobbying against New York’s ban. They claim it would kill promotions and skyrocket costs.

Instacart said it has never allowed surveillance pricing on its platform and supports banning the practice, a company spokesperson said in an emailed statement. But “New York’s proposal is broader than comparable bills across the country, and could eliminate the targeted discounts, promotions, and loyalty programs that help families stretch their budgets at a time when it matters most,” the spokesperson added.

New York’s latest bill is so broad it could “prohibit the use of important operational information (even garbage pickup or school drop-offs) that is critical to pricing and managing transportation and delivery services” and ultimately increase costs, an Uber spokesperson said in an emailed statement.