The National Retail Federation (NRF) filed a lawsuit Wednesday, asking a federal court to block a New York state law set to go into effect Tuesday that requires retailers, including convenience stores, to disclose the use of “algorithmic” pricing.
The Washington, D.C.-based retail trade association said the measure would unfairly malign a system that helps merchants give customers lower prices and personalized offers.
The New York Algorithmic Pricing Disclosure Act is part of the state’s budget bill signed by Gov. Kathy Hochul on May 9. The new measure requires any retailer that sets prices using virtually any information about its customers to place a disclosure next to each affected product saying, “This price was set by an algorithm using your personal data.”
“Today's technology means corporations are able to collect mountains of personal data, feed it into algorithms, and generate a price that’s individual to a consumer,” Hochul said in a May statement. “This practice, which the FTC [Federal Trade Commission] has dubbed surveillance pricing, means a company could be charging you and your neighbor different prices for the same product, based on your individual willingness to pay.”
Hochul called this practice “opaque” and strips consumers of their ability to comparison shop and plan for the price of goods and services.
However, NRF Chief Administrative Officer and General Counsel Stephanie Martz said the law interferes with a retailer’s ability to provide their customers with the highest value and best shopping experience they can.
“Algorithms are created by humans, not computers, and they are an extension of what retailers have done for decades, if not centuries, to use what they know about their customers to serve them better,” Martz said. “It’s just done at the scale of the modern economy. Stigmatizing tools that drive prices down turns offering deals into a liability, and consumers will end up paying more.”
NRF said the suit argues that the law, which is “replete with arbitrary exemptions,” violates both the First and 14th Amendments and asked for both preliminary and permanent injunctions blocking its enforcement.
Retailers have traditionally checked to see what competitors charge, made seasonal price adjustments, or offered promotions based on intuition, NRF said. Using algorithmic pricing, “They simply do it with greater sophistication and on a much-larger scale,” the suit said.
Grocers, for example, have long offered coupons at checkout for items similar to those purchased and gas stations offer free car washes to certain credit card holders, the suit explained.
“Retailers use algorithmic pricing to help customers save money” by using their purchase history, items in their online shopping cart, zip code and other information customers voluntarily share rather than any personal sensitive data, the complaint said. “Despite this, the State of New York will soon require many retailers to affix a misleading and ominous warning to any price set by an algorithm using any information that could be linked to a customer.”
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