A couple of years ago, when he was in charge of the FTC’s Bureau of Consumer Protection, Sam Levine began investigating a marketplace that until then had escaped the notice of regulators. A cadre of software companies, consultancies, and financial institutions had taken troves of data sloshing around on the internet and used them to design algorithms allowing retailers to set personalized prices for each of their customers, up to the edge of what they’d be willing to pay. An article right here in the Prospect coined the phrase for this activity: surveillance pricing.
Before leaving office, Levine’s FTC issued its preliminary study of the topic, finding that just eight surveillance pricing companies were working with over 250 clients. Levine later co-wrote a paper about how much of the data extracted for personalization comes from retail loyalty programs. And outrage from consumers has led to both political action and corporate pushback.
Newly required disclosures have shown that surveillance pricing is everywhere, but they haven’t done anything to curtail the thing itself.
Since an early reform went into effect last November, New York state retailers have been compelled by law to publish boilerplate disclosures for goods they’re hawking at prices algorithmically determined using a customer’s personal data, like location, shopping, or browser history. Those disclosures have shown that surveillance pricing is everywhere, but they haven’t done anything to curtail the thing itself. Other laws purporting to crack down on surveillance pricing have passed in Maryland, Connecticut, and most recently New York—another in Colorado was vetoed by Gov. Jared Polis (D). But none of them have quite gotten the job done either, watered down by fierce lobbying.
Now, in his new job as commissioner of New York City’s Department of Consumer and Worker Protection (DCWP), Levine wants the city to ban surveillance pricing outright. A new bill at the city council, introduced by council Speaker Julie Menin, who was in charge of consumer affairs for the city a decade ago, would empower DCWP to do that, though it’s unclear how much of a deterrent it would pose to businesses as drafted.
“Agencies are small, resources are limited, courts can sometimes move slowly, and that is why our agency and the administration strongly believes a private right of action should be added to the bill,” Levine told the Prospect. That would make it possible for consumers to sue corporations individually or as a class over infractions of the law, with each carrying up to a $1,000 penalty. “It makes it a lot less likely that companies violate the law, because they know they could face significant liability if they’re fast and loose,” Levine said.
Industry lobbyists are basically on the same page about the downstream effects of a private right of action, which they oppose. “Our companies, especially if they’re exposed to lawsuits from individuals on these unclear statutes, are going to err on the side of caution and just not provide or engage in the discount loyalty program practices,” where much of the data for surveillance pricing comes from, says Matt Henning, the government affairs director of Tech:NYC, a trade group whose members include e-commerce giants Amazon, Instacart, and Booking.com.
A city council spokesperson confirmed to the Prospect after a recent hearing on the bill, which is still early in the legislative process, that lawmakers are considering adding a private right of action to it.
Previous efforts to do so have fallen short. The New York state legislature axed a private right of action from its own surveillance pricing ban, which it passed earlier this month and sent to Gov. Kathy Hochul’s desk. A spokesperson for the governor said she “will review the bill” but would not go into further detail about her thinking on it.
E-commerce platforms and retail giants have fought the bill relentlessly in behind-the-scenes lobbying, according to a source familiar with the legislative discussions. In public, they’ve been backstopped by trade associations and industry coalitions including the high-tech advocacy group Chamber of Progress, run by a former Google lobbyist, which has been barnstorming states where bans are now on the table, like New Jersey and California.
The group’s messaging has focused on how businesses use personal data to dole out discounts, coupons, and targeted promotions, which make their products more affordable. Without them, they say, businesses would be forced to raise prices for everyone. But the current version of the New York City bill, which Chamber of Progress opposes, addresses that concern by exempting old-fashioned discounts and coupons available to members of rewards programs, low-income people, teachers, veterans, seniors, students, or other “members of a broadly defined group.”
Chamber of Progress wants the city to add algorithmically determined personalized discounts to that list, like Maryland did in its recent surveillance pricing law. That law wound up packed full of other carve-outs and caveats, including an exemption for subscription pricing. It also jettisoned a private right of action and barred consumers from suing companies for algorithmic price discrimination under “any other law” on the state’s books.
Exempting algorithmically determined discounts, according to Mayu Tobin-Miyaji, a law fellow at the Electronic Privacy Information Center, could act as a kind of Trojan horse for overall price hikes down the line. It also provides “an incentive for every consumer to opt into the loyalty program, giving up a lot of their personal data, which can then be sold,” she told the Prospect. Last year, Starbucks reported that 60 percent of the company’s revenue came from its loyalty program spenders, who, for the most part, accrue points in a mobile app.
The power of a private right of action came across in a class action lawsuit filed this month in Washington, D.C., against The Washington Post, which, according to the complaint, has been luring customers in through a discount deal on Amazon, which gave the company access to comprehensive data profiles. The Post then monitored accounts and pushed subscriptions on readers with different prices depending on customer usage.
The case argues that this kind of surveillance pricing is already illegal under the District of Columbia’s consumer protection law, which prohibits unfair acts. But a bright-line ban, as is being planned in New York City, could prove more effective.
