New York Seeks Transparency in Personal Algorithmic Pricing Practices

While currently the subject of litigation, New York’s Algorithmic Pricing Disclosure Act seeks to require any entity doing business in New York to provide a clear warning whenever a price is set by an algorithm that uses a consumer’s personal data. The law suggests that it is inadequate for this warning to be included solely in a privacy policy. Instead, it appears that the disclosure must be displayed in the same medium alongside the price. Further, the Act’s definition of personal data is broad, encompassing not only sensitive information but also non-sensitive details that a consumer might provide voluntarily, like zip code and rewards program history. Hence, even if a pricing algorithm uses only non-sensitive personal data provided voluntarily, the law would require the disclosure to be made.

In addition, the Act does not distinguish between the use of personal data that results in higher prices as opposed to lower prices; the mere fact that an algorithm uses any personal data to set a price would trigger the disclosure obligation. Additionally, states such as California and Texas have introduced similar legislation earlier this year.

Litigation Challenging the Act

On July 2, the National Retail Federation (NRF) filed a complaint in the Southern District of New York arguing that the Act violates the First and 14th Amendments by compelling businesses to communicate a government-scripted message that misrepresents their actual practices. According to the NRF, its members typically use data that consumers voluntarily provide, such as information collected through loyalty programs, to offer deals and personalized shopping experiences. These programs, they argue, are built on ordinary information like shopping habits and product preferences, not sensitive personal details.

Ultimately, the NRF claims that the required disclosure will mislead consumers, making them believe that retailers are using sensitive data like age, race, or income to set prices, or worse, that they are using this information to raise prices.

Takeaways

For some, this Act marks a major shift in how companies must communicate with customers about pricing practices that involve personal data, while the ongoing legal challenge by the NRF adds a layer of uncertainty about how these requirements will ultimately be enforced. Our team will continue to monitor the situation, including oral arguments set for September 4, and provide updates as they become available. Please contact the authors with questions or concerns.