FTC Proposes Penalties for Not Disclosing Use of Personalized Pricing

The Federal Trade Commission announced that retailers who use personal data to set individualized prices may be violating federal consumer-protection law if they fail to disclose the practice to customers, report a variety of news sources, including Quartz.com.

The commission released a proposed enforcement policy statement saying that businesses engaged in personalized pricing — the use of consumer data to estimate how much a specific individual is willing to pay — must make “clear and conspicuous” disclosures about that, including the fact that a price is personalized, the basis for that personalization and the types of data on which it relies. Failure to do so likely constitutes an unfair or deceptive act or practice under Section 5 of the FTC Act, the commission said.

(For violating that section, the commission can take a variety of steps, including issuing administrative cease-and-desist orders, seeking federal court injunctions, negotiating settlements with monetary civil penalties or consumer redress and mandate structural remedies like corporate restructuring, bans, or compliance monitoring.)

“When consumers see a listed price, they expect it to be the same price that everyone else sees, not the retailer’s estimate of how much they are willing to pay based on their personal data,” FTC Chairman Andrew Ferguson said in the commission’s press release on the plan. “Businesses that fail to tell consumers how their personal data is being used to set a price may be in violation of the FTC Act and other laws we enforce.”

The commission acknowledged it lacks authority to ban personalized pricing outright but said it intends to deploy enforcement resources against companies that do not meet its disclosure standards. The commission vote authorizing the proposed statement for public comment in the Federal Registry was 2-0. Once published in the register, the public will have 30 days to submit comments on the proposal.

According to Regulations.Gov, after that comment period ends, the FTC will review the submitted feedback, analyze significant issues raised and decide whether to issue a final rule, modify the proposal, issue a second draft, or withdraw the action entirely. As of this posting, the proposed rule had not yet been moved onto the Federal Register.

Among the groups closely watching such proposals is the National Retail Federation. Though it had not issued a statement reacting to the FTC’s latest move as of this posting, in a policy statement on its website earlier this year, the federation defended data-driven and algorithmic pricing as providing targeted discounts, loyalty rewards and competitive prices rather than unfairly raising individual prices.