New York Attorney General Letitia James recently proposed the first-ever rules to strengthen enforcement of the state’s price gouging law, which prohibits companies from exploiting market disruptions to increase their profits on essential goods and services. In response to the influx of pandemic-related price gouging complaints, the 2020-amended law gives the AG rulemaking authority, among other changes.

Open to a 60-day public comment period, the proposed rules aim to protect consumers and small businesses from corporate profiteering by establishing “clear guardrails against price increases during emergencies,” making it easier for the AG to investigate and combat price gouging. Two significant elements of the proposed rules include:

1. They create a presumption that any price increase over 10% during an abnormal market disruption would represent a “gross disparity” and may constitute price gouging. Companies falling in this category must then demonstrate a record of their costs to justify the increase. The AG chose a 10% threshold since it is the “most commonly employed measurement around the country” and is used in New York City’s price gouging rule, indicating a “societal convergence around the illegitimacy of more than 10% price increases.” The rules also provide examples of which justifications count or do not count as affirmative defenses. For example, a new vital product or service introduced after a market disruption does not constitute a defense, meaning companies cannot justify their price increases by pointing to the cost of producing the new product or service.
2. The rules prohibit corporations with more than a 30% market share or in concentrated markets from increasing profit margins during abnormal market disruptions. For companies that rely on or favor dynamic pricing, the AG would use the median price of the same good or service one week before the market disruption as a benchmark to determine whether illegal price gouging occurred.

The rules provide penalties for violations, with fines ranging from $500 to $25,000. Violators may also be required to pay restitution to consumers affected by the price gouging.

Why It Matters 

The proposed rules enhance the New York AG’s power to scrutinize and enforce pricing claims against businesses. They also serve as another regulatory initiative to strengthen price gouging laws in the shadow of lessons learned from the COVID-19 pandemic.