Price gouging rules proposed by NY AG Letitia James

During the next severe storm, ride-hailing companies, gas stations and supermarkets may face price-gouging investigations if they raise prices more than 10%. Also, regulators may scrutinize big players if they increase their prices at all for vital products and services. 

New York Attorney General Letitia James released draft rules Thursday that she said would better protect consumers during emergencies and clarify when businesses are breaking the state's price-gouging law. That measure forbids charging an “unconscionably excessive price" for essential goods and services during "any abnormal disruption of the market," but doesn’t say when price hikes cross the line.

James is considering treating increases beyond 10% as potential instances of price gouging because that's the bar used by the most governments across the country, the draft rules state. 

“The rules proposed by my office will bolster our efforts to crack down on price-gouging and ensure that large corporations do not take advantage of New Yorkers during difficult times," James said in a statement.

The price-gouging law kicks in during emergencies, such as severe storms, pandemics and military activity, and only applies to goods and services that are critical during the crisis, which often includes food, water, gas, transportation and medicine. The measure covers every part of the supply chain for those goods and services — from producers, to distributors, to transporters and retailers, the draft rules state. 

The proposed rules are likely to face legal challenges, according to Lauren Roth, assistant professor of law at Touro University Jacob D. Fuchsberg Law Center. She said there’s no indication that New York’s attorney general has authority over suppliers that don’t conduct business in the state, but whose goods are sold here at inflated rates.

Some parts of the rules may be debated in court because they’re currently written with so little detail, she said. The draft measures seek feedback on a few ideas, which suggests changes may be coming, Roth added.

“It’s a little bit more politically palatable to try to go upstream," Roth said, referring to focusing on the producers and wholesalers, rather than just the retailers. "I’m just not sure what the courts will have to say about that." 

For companies that use algorithms to adjust prices throughout the day, regulators would compare their rates during emergencies with the median prices they charged a week earlier. For instance, a car ride-hailing company may be price gouging if it charges 15% more for a trip during a blizzard than the median cost for the same ride a week earlier. 

An Uber spokeswoman said the company was reviewing the proposed changes.

The Attorney General’s Office didn’t respond when asked if the measure on so-called dynamic pricing would likely apply to Amazon or food and grocery delivery apps.

Amazon spokeswoman Rachael Lighty didn't directly respond when asked if the company believed its pricing practices would fall under the dynamic pricing rule.

Proposed cut: "Amazon has zero tolerance for price-gouging," Lighty said in a statement. "We deploy dynamic automated technology to proactively seek out and pull down unreasonably priced offers, and we have a dedicated team focused on identifying and investigating unfairly priced products." 

Trade groups for other businesses, including convenience stores, said they needed more time to review the rules.

Eyeing dominant players

Businesses that dominate their industry may more easily attract scrutiny under the proposed rules. Regulators may consider it price gouging if companies that have at least 30% of the market share raise their prices on vital goods and services at all, according to the Attorney General's Office. What constitutes a market could vary depending on the industry and situation, the office has said.

If firms hit the 30% market-share threshold, their decision to raise prices could impact nearly one in three costs available  for a given product and leave consumers with few options, Roth said. But if James’ office doesn’t provide more detail on how market share will be assessed, businesses will have a hard time knowing which benchmark to abide by and the matter may wind up in court, Roth said. 

Clear rules are critical for companies, said Matt Cohen, president and CEO of the Long Island Association, a regional business association.

“Any rules that intend to level the playing field need to be clear and not place any additional burdens on law-abiding employers,” Cohen said in a statement. 

In certain cases, businesses may also be penalized for price increases below 10%, which the draft rules describe as a guidepost, rather than a formal threshold.

Firms would be able to defend against price-gouging charges by showing that their increases didn't result in higher profit margins or were born of skyrocketing costs that they couldn't control.

James' office has been responsible for enforcing the price-gouging law for more than 40 years and investigates related consumer complaints. Companies that engage in price gouging may have to give refunds to customers and pay fines that could be $25,000 per violation, according to the office.

The attorney general's team will accept public comments on the proposed rules for at least 60 days. After that, James may adopt the rules as written or revise them in response to feedback.

Comments on the proposed rules can be submitted to stopillegalprofiteering@ag.ny.gov.

With Tory N. Parrish

By Sarina Trangle

sarina.trangle@newsday.com@SarinaTrangle

Sarina Trangle covers affordability and cost of living issues and other business topics. She previously worked as an editor and reporter at amNewYork.