NEW YORK – The nation’s first law requiring businesses to disclose when they use consumer personal data to set or adjust prices took effect this week.
New York’s Algorithmic Pricing Disclosure Act took effect November 10 for businesses domiciled or doing business in New York and using dynamic or personalized pricing that may affect consumers.
The act requires a clear disclosure stating: “This price was set by an algorithm using your personal data.” The disclosure must be placed “on, at or near and contemporaneous with” the price, using language “easily visible and understandable to the average consumer.”
The act also requires businesses using dynamic or personalized pricing to document compliance with the disclosure obligation, assess how consumer data infiltrates their pricing algorithms, and develop communication strategies that highlight the consumer benefits of data-informed pricing.
Gov. Kathy Hochul signed the act in May, but implementation was delayed when the National Retail Federation sued Attorney General Letitia James, alleging it violated the First Amendment’s ban on compelled speech and implies that retailers using consumer personal data in pricing are engaged in invasive or nonconsensual surveillance.
Thorvardur de Shong
Judge Jed Rakoff of the Southern District of New York last month granted the attorney general’s motion to dismiss, noting the compelled disclosure was "plainly factual" and "not rendered 'controversial' merely because the regulated entity does not wish to make that disclosure."
The judge said New York has a legitimate interest in ensuring consumers have transparency on prices and noted that retailers remain free to provide additional context explaining the data and the benefits of algorithmic pricing.
The law defines personalized algorithmic pricing as any price set by an algorithm using data that identifies or can be linked to a specific individual or device, such as browsing history, shopping behavior or location data.
It exempts certain businesses in the insurance and financial sectors as well those with subscription-based models in which the offered price is lower than the contractual rate.
James’s office last week issued a consumer alert encouraging consumers to report companies that fail to display proper algorithmic pricing disclosures through an online complaint form.
Rakoff’s ruling comes as lawmakers in several states are debating the role of algorithms in setting prices when the data is based on personal, nonpublic or competitively sensitive information.
The Preventing Algorithmic Collusion Act was introduced in the U.S. Senate earlier this year. The bill aims to inform consumers when algorithms affect pricing, credit, employment, or other economic decisions. “Transparency is a key tenet of doing good business, and consumers expect businesses to treat them fairly,” according to Peter Welch of Vermont, one of the bill’s nine Democratic co-sponsors.
