• by Wendy Davis , 89 minutes ago

Companies that use consumers' personal information to set individualized prices should disclose that practice in situations where personalized pricing would come as a surprise, the Federal Trade Commission said Wednesday.

"Although personalized pricing is a long-established norm in some markets, it is not in many others," the FTC said in a proposed enforcement policy statement. "Personalized pricing in the latter markets would therefore run contrary to longstanding practice and consumers’ reasonable expectations that the price they see for a product or service is the same price that any other consumer at the same place and time would see."

The agency added businesses that fail to disclose a surprising use of personalized pricing -- as well as "the basis for that personalization and the types of data on which the personalization is based" -- likely engage in an unfair or deceptive practice.

"Consumers who are unaware of personalized pricing cannot take steps to avoid the higher prices that may result from it, such as using a virtual private network or private browsing functionality, choosing a different retailer whose prices are static or widely offered, rather than personalized, or simply declining to complete the transaction," the agency said.

The FTC also said businesses that collect or use personal data for pricing purposes "without adequate disclosures or without obtaining consent" might be engaging in unfair or deceptive practices.

The agency provided some examples of situations when failing to make disclosures might be deceptive or unfair.

One scenario involves a hotel charging higher prices to someone believed to be traveling for a funeral. Another involves a retailer charging more for a security system if court records show the customer was recently a crime victim.

The FTC proposal says there are still unknowns regarding data-driven pricing, including its impact on consumers.

Early last year, during the waning days of the Biden administration, the agency published a report examining the techniques companies use when determining how much to charge particular individuals.

That report said companies could collect “real-time information about a person’s browsing and transaction history,” and then decide whether to offer coupons based on assumptions derived from that data.

“A pharmacy could choose to exclude routine, regular customers in a special promotion for over-the-counter medications or weight-loss supplements because the pharmacy inferred that those customers are likely to buy those products anyway,” the FTC stated in the report.

“If a consumer is profiled as a new parent, the consumer may intentionally be shown higher priced baby thermometers on the first page of their in-app search results, based on their residential zip code and time of purchase,” the authors wrote.

When the FTC issued the report, it sought input from consumers and businesses about how surveillance pricing had affected them. But several days later, Andrew Ferguson replaced Lina Khan as head of the agency and withdrew the request for information.

The FTC's proposal comes as state lawmakers are increasingly eyeing companies' use of data to set prices. For instance, last month New Jersey enacted legislation prohibiting businesses from using shoppers' personal data -- including web browsing data and other information linkable to individuals -- to set grocery prices.

New York state last year passed a more modest law requiring companies that use algorithms for personalized pricing to disclose that practice to consumers.

That measure, the Algorithmic Pricing Disclosure Act, drew a challenge from the National Retail Federation, which says forcing companies to display warnings violates the First Amendment. A district court judge threw out the lawsuit, but the retail group appealed to the 2nd Circuit Court of Appeals, which is still considering the matter.

Earlier this year, the watchdog Consumer Reports urged the FTC to issue regulations that would generally ban personalized pricing, but allow for "reasonable and well-scoped exemptions."

The organization previously reported that Instacart charged varying prices for the same items in the same stores. For instance, according to that report, a box of 10 Clif Chocolate Chip Energy bars sold for $19.43, $19.99, and $21.99 on Instacart at a Safeway store in Seattle. (Two weeks after Consumer Reports published its findings, Instacart said it was ending "item price tests" on the platform.)

The FTC suggested Wednesday it isn't empowered to ban personalized pricing.

"Congress has not given the Commission the authority to prohibit personalized pricing outright, but the Commission intends to enforce aggressively against any practices associated with personalized pricing that violate Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce," the agency wrote.

On Wednesday, Consumer Reports called the FTC's proposal "encouraging," but also reiterated its call for a ban on personalized prices.

"Nobody should have to pay more for groceries or other essential goods because a company knows what they’re searching for online, what their income is, the makeup of their household, or where they go," senior policy analyst Grace Gedye stated.

"It should not be consumers’ responsibility to read detailed disclosures on each item while shopping online to avoid being hit with a higher price. Instead, the FTC, Congress, and states should take action to prohibit companies from using consumers’ individual data to personalize prices in the first place."