Following a string of warnings to New York businesses since the outbreak of the COVID-19 pandemic, New York attorney general Letitia James recently published a Notice of Proposed Rulemaking to establish stronger barriers against price hikes during emergencies such as the pandemic. The proposed rule aims to protect consumers amidst abnormal market disruptions by imposing stricter regulations on businesses for price gouging.
New York’s current price gouging law, New York General Business Law 369-R, provides that, “[d]uring any abnormal disruption of the market,” no business in the distribution chain may charge an “unconscionably excessive price” for good or services. Proof of price gouging may include pricing representing a “gross disparity” between the price charged for the same product or service prior to and following the market disruption. The statute also provides businesses with an affirmative defense if they are able to show that a price increase preserves their profit margin or if additional costs beyond their control were imposed. However, the law offers little guidance regarding compliance, including regarding what constitutes “unconscionably excessive” pricing or a “gross disparity” in price.
Consequently, the following seven proposed rules seek to improve clarity for businesses by providing additional guidance and guardrails to rely upon:
🔸Presumptive Cases of Gross Disparity – a “gross disparity” in price exists when a product’s price increase exceeds 10% of the price at which it was sold before the market disruption.
🔸Costs Not Within the Business’s Control – a business may claim the affirmative defense that additional costs imposed on consumers are not within their control, provided that such costs are “only actually incurred costs attributable to the production, purchase, storage, distribution, taxation, labor, and sale of the specific good or service, and a directly attributable percentage of the overhead costs of the business.”
🔸New Goods or Services – the fact that a product or industry that did not exist before the market disruption is not a defense to the law, and profit margins for a new product that are higher in percentage terms than a comparable product may serve as proof of unfairly high prices
🔸Presumptive Cases of Unfair Leverage – “unconscionably excessive” pricing includes pricing obtained through “unfair leverage or unconscionable means,” including through the use of unfair bargaining power, high-pressure sales tactics, and ambiguous or hidden language in contracts
🔸Unfair Leverage – “unfair leverage” is presumed when either a seller with at least 30% market share or a large competitor (a business with over 10% market share in a market with five or fewer significant competitors) raises prices.
🔸The Statute Applies to All Parties in the Distribution Chain – the proposed rules specify that the statute applies to all parties involved in the distribution of goods and services sold in New York, including manufacturers, suppliers, wholesalers, distributors, and retail sellers
🔸Dynamic Pricing – for purposes of comparing pricing prior to and following a market disruption, the pre-disruption price for sellers employing dynamic pricing is the median price for the same good or service at the same time one week prior to the market disruption
Do you have any questions or concerns about the proposed changes to New York’s price gouging statute? If so, please contact Your Ad Attorney, Inc. today!