From Cart to Court: New York Demands Algorithmic Price Transparency

On July 8, a significant new law took effect in New York. The Algorithmic Pricing Disclosure Act requires retailers to provide a clear warning whenever a price is set by an algorithm that uses a consumer’s personal data. Personal data is defined broadly, encompassing not only sensitive information but also non-sensitive details that a consumer might provide voluntarily, such as zip code and loyalty program status. Hence, even if a retailer’s pricing algorithm uses only non-sensitive data provided voluntarily, the disclosure must still be made. A popular food delivery service has already started placing this warning on its app.

More importantly, the Act does not distinguish between the use of personal data that results in a higher price as opposed to a lower price for consumers; the mere fact that an algorithm uses any personal data to set a price triggers the disclosure obligation. This means that common retail strategies, such as tailoring discounts through loyalty programs based on purchase history, now fall squarely within the Act’s scope.

A Legal Challenge Emerges

Even before the Act went into effect, the National Retail Federation (NRF) challenged its constitutionality in federal court. On July 2, the NRF filed a complaint in the Southern District of New York, arguing that the Act violates the First and 14th Amendments by compelling retailers 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 fears 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.

Wider Implications for Retailers, Brands, and Consumers

The potential implications of the Act are far-reaching. It does not just target retailers who engage in aggressive dynamic pricing, but rather any business that uses any personal data, no matter how innocuous, to set any price. Loyalty programs, which have become a cornerstone of brand strategy and consumer engagement, are in the crosshairs. As these programs grow in popularity, more brands will find themselves vulnerable to the Act’s disclosure requirements.

The Act marks a major shift in how retailers must communicate with consumers 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 and provide updates as they become available. Please contact the authors with questions or concerns.