NY Becomes First State to Implement Law Regulating Algorithmic Pricing by Retailers

The law requires retailers that use personal pricing tools to include the following disclosure: “THIS PRICE WAS SET BY AN ALGORITHM USING YOUR PERSONAL DATA”.

The provision was originally adopted as part of a bill to enact the state budget, but was immediately challenged in court by the National Retail Federation. The business group argued the provision is far too broad and violated retailers’ First Amendment rights. But a federal court last month ruled in favor of the state, allowing the disclosure requirement to take effect.

Enactment of the New York law is widely expected to trigger a rush by other states to try to adopt similar measures. Lawmakers in at least 10 states have introduced bills to ban surveillance pricing algorithms outright or require disclosure.

“It certainly is a big deal,” Goli Mahdavi, an attorney with  Bryan Cave Leighton Paisner who focuses on artificial intelligence and data privacy, told the New York Times. “Algorithmic pricing bills are probably the next big battleground in A.I. regulation.”

In January, the Federal Trade Commission under then-chair Lina Khan released a report noting that retailers could track consumer behavior as subtle as the movement of a computer mouse and describe a sometimes-shadowy market for some tracking products.

In an interview with the Times, Khan, who is now a member of New York City Mayor-elect Zohran Mamdani called the New York provision an “absolutely vital” tool for regulators scrutinizing personalized pricing.

Related: Lawmakers Introduce Legislation to Block Collusive Rental Pricing Software

 The practice threatens to “fully creep across the economy,” Khan warned, adding there is a “ton more work to be done” at the state and federal levels to regulate it.

The issue of discriminatory personalize pricing surfaced in 2012, when the travel website Orbitz revealed to the Wall Street Journal that it showed Mac users ads for pricier hotels than it showed to PC users, on the premise that consumers using more expensive computer hardware likely had higher incomes.

Since then, the rapid spread of AI has heightened concerns that more sophisticated tools have refined the practice and increased its use. Just how much it has increased is unclear, however.

Chad Yoes, founder of the retail brokerage Waypoint Retail and a former senior pricing executive at Walmart, told the Time he believed large retailers’ use of personalized pricing was generally limited to rewards programs and that the practice was far more prevalent on social media apps than on retail sites. But he warned that the disclosure requirement could cause consumers to become wary of all retailers even where personal pricing algorithms are not used.

“Fundamentally it’s going to start breaking trust between retailers and consumers,” he said.

A spokesman for Uber acknowledged to the Times that the company had begun displaying the disclosure to New Yorkers as required but called the law “poorly drafted and ambiguous.”

The law specifically exempts from the disclosure requirement the use of “location data that is used by a for-hire vehicle… solely to calculate the fare based on mileage and trip duration between the passenger’s pickup and drop-off locations.