A recently enacted law in New York to protect online shoppers from price gouging orchestrated by artificial intelligence (AI) could well be the next front in AI regulation.
The Algorithmic Pricing Disclosure Act mandates companies using AI-driven pricing display clear notifications to consumers from a growing practice called “personalized pricing” or “surveillance pricing.” Retailers who use AI and customers’ personal data to set prices online are required by law to post the following disclosure: “This price was set by an algorithm using your personal data.”
A shopper with a history of splurging on airline tickets, for example, would be recommended jacked-up hotel prices, lawmakers said.
New York Attorney General Letitia James issued a consumer alert emphasizing the importance of transparency in surveillance pricing, in which AI algorithms set different prices for identical products based on individual consumer data including income, location, and shopping history. James highlighted examples such as hotel rooms costing more when booked from affluent ZIP codes.
“New Yorkers deserve to know whether their personal information is being used to set the prices they pay, and if businesses are charging customers different prices for the same products,” James said. She urged consumers to report non-compliant businesses. Her office can impose penalties of $1,000 per violation.
Democratic New York Gov. Kathy Hochul released a statement supporting the legislation as the holiday shopping season kicks into gear.
“This new law shines the light on hidden online pricing tactics that take advantage of consumers,” Hochul said. “By requiring companies to be upfront when setting prices based on personal data, we are giving shoppers the transparency they need to make smart choices.”
As consumers spend more time and money online, especially during the holiday season, they’re also likely to be sharing more information in the form of browsing behavior, location, and purchase history with the companies they interact. This has led companies to use that technology to collect mountains of personal data, feed it into algorithms, and generate a price that’s individual to a consumer.
The Federal Trade Commission (FTC) has raised concerns that surveillance pricing eliminates consumers’ ability to comparison shop effectively, as companies leverage vast amounts of personal data to determine individual willingness to pay.
Former FTC Chair Lina Khan, a member of New York Mayor-elect Zohran Mamdani’s transition team, told the New York Times that the practice of personalized pricing threatens to “fully creep across the economy,” requiring a “ton more work to be done” at the state and federal level. (Federal lawmakers, as well as at least 10 states, including California, are considering bans on personalized pricing or disclosures, as in New York.)
Conversely, retailers and other business interests insist the law is too broad, creating confusion among consumers.
