FTC Votes 2-0 to Curb Undisclosed Personalized Pricing

The Federal Trade Commission voted 2-0 Wednesday to require retailers to disclose when they use personal data to set individualized prices, a move that could reshape pricing across grocery delivery and ride-share apps.

"When consumers see a listed price, they expect it to be the same price that everyone else sees, not the retailer's estimate of how much they are willing to pay based on their personal data," Andrew Ferguson, chairman of the FTC, said.

The proposed enforcement policy statement, released for 30 days of public comment, requires "clear and conspicuous" disclosures covering the fact that a price is personalized, the basis for that personalization, and the types of data used. Failure to do so likely constitutes an unfair or deceptive act under Section 5 of the FTC Act, the commission said. The agency flagged scenarios including a food delivery company quoting higher prices to consumers it believes are less able to leave their homes, a grocery chain charging more for milk based on the number of children in a household, and a ride-share company charging more to a user who has not installed a competitor's app.

The FTC acknowledged it lacks authority to ban personalized pricing outright but said it will "deploy enforcement resources" against companies that miss its disclosure standards. When consumers pay higher prices based on undisclosed use of their data, they suffer a "substantial injury" they cannot avoid, the commission said. The move follows a wave of state action: New York last year required disclosure of algorithmic pricing, Maryland banned algorithms that vary food prices at the individual level, and New Jersey last month barred using personal data to set grocery prices.

States Move Ahead of Washington

The FTC's study during the Biden administration found personalized pricing could set higher prices for shoppers unfamiliar with a market, such as new parents or first-time car buyers. Ferguson, then a minority member of the commission, said Democrats rushed out the initial findings and closed an effort by predecessor Lina Khan to seek public input on the practice.

The enforcement push gained urgency after Instacart was revealed to have allowed retailers to vary prices for individuals across four cities who added the same items simultaneously to their carts. In December, Instacart ended the price tests after a Consumer Reports study showed some shoppers saw prices up to 23 percent higher than others browsing the same items from the same store. The study found a box of 10 Clif Chocolate Chip Energy bars sold for $19.43, $19.99, and $21.99 at a Safeway store in Seattle.

Retailers Face Compliance Burden

Consumer advocates said the action doesn't go far enough. "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," said Grace Gedye, senior policy analyst at Consumer Reports. Nidhi Hegde, executive director of the American Economic Liberties Project, called the announcement "two years too late and not nearly enough."

The National Retail Federation has challenged New York's disclosure law on First Amendment grounds; a district court threw out the lawsuit, and the 2nd Circuit is considering the appeal. The FTC's statement will be open for public comment for 30 days once published in the Federal Register. The commission said it still doesn't know how often businesses use personalized pricing, but "the more sophisticated personalized pricing practices become, the less likely consumers are to benefit."

This article is for informational purposes only and does not constitute investment advice.