New York Attorney General Letitia James announced that she is proposing new rules on price gouging in order to "ensure that large corporations do not take advantage of New Yorkers during difficult times."
New York's Price Gouging Law
New York's price gouging law prohibits the sale of "goods and services vital and necessary for the health, safety and welfare of consumers or the general public" at an "unconscionably excessive price" during any "abnormal disruption of the market."
An "abnormal disruption of the market" is defined as an actual or threatened change in the market resulting from "stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency" or a disruption "which results in the declaration of a state of emergency by the governor."
The goods and services that are covered by the rule include vital and necessary consumer goods and services, vital and necessary medical supplies and services, and other vital and necessary goods "used to promote the health or welfare of the public."
Whether a price is "unconscionably excessive" depends on whether the amount charged for a product is "unconscionably extreme" or whether the price was set through either "an exercise of unfair leverage" or "unconscionable means." A prima facie case for a violation of the law can be established by showing "a gross disparity" between the allegedly excessive price and "the price at which such goods or services were sold or offered for sale by the defendant in the usual course of business immediately prior to the onset of the abnormal disruption of the market" or by showing that the allegedly excessive price "grossly exceeded the price at which the same or similar goods or services were readily obtainable in the trade area."
Advance Notice of Proposed Rulemaking
In March 2022, the NYAG launched a rulemaking process.
In the Advance Notice of Proposed Rulemaking, the NYAG said that New York is experiencing an "abnormal disruption of the market" because of the fact that the State is in an ongoing health crisis and has faced disruptions to supply chains, large shifts in demand, and reductions in manufacturing output. The NYAG explained, "COVID-19 has led to the worst economic crisis in New York since the Great Depression, and massive unemployment."
The NYAG sought public comment on a variety of questions in order to informing its rulemaking, including, including questions about how price increases should be limited, the role profit plays in determining whether price gouging has occurred, and how to address price gouging when new products are developed during a period of market disruption.
Proposed Rules
Last week, the NYAG proposed specific rules to help implement New York's price gouging law. In a statement, the NYAG's office explained that, "The proposed rules will make it more straightforward to investigate and combat price gouging by setting clear guardrails against price increases." The NYAG will be accepting comments on the proposed rules for sixty days, and then will make a determination about whether to revise them further or to promulgate them in their current form.
Here are some key provisions of the proposed rules:
- The proposed rules will create a presumption that a 10% price increase during an abnormal market disruption will constitute price gouging. The NYAG's office explained, "By stating that a 10 percent increase represents a "gross disparity," the proposed rule makes it easier for consumers and small businesses to identify and report price gouging, deters price gouging, provides enforcers with an easily administrable standard for enforcing the price gouging statute, and is widely used by other enforcers."
- It's not price gouging when a company raises prices due to costs that are out of the company's control. The proposed rules define how those costs are defined and what is specifically excluded from those costs. For example, a company can't justify a price increase due to a decline in sales of other goods and services, most projected future costs, and internal charges.
- The proposed rule also addresses issues related to price gouging when a new product is introduced during the abnormal market disruption. The NYAG says that, even if a product has never been sold before, it will look to whether the profit margins for that product are higher in percentage terms than comparable products.
- The proposed rules also prohibit corporations with large market shares from increasing profit margins during abnormal market disruptions and clarify that all parties within the chain of distribution -- including manufacturers, suppliers, wholesalers, etc. -- are subject to New York's price gouging law.
- The proposed rules also address how the NYAG's office will evaluate whether companies that use dynamic pricing are engaging in price gouging.
In announcing the proposed rules, James said, "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." And, State Senator (and Frankfurt Kurnit alum!) Brad Hoylman-Sigal said, "Price gouging during an emergency is a shameful and illegal practice, and far too many New Yorkers have suffered from corporate greed during the pandemic and other natural disasters . . . . I commend Attorney General James for proposing a set of rules to keep our consumers and small businesses safe from exploitation "
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