The Federal Trade Commission yesterday issued a proposed enforcement policy statement on personalized pricing and opened it for public comment, warning that businesses using consumers’ personal data to set individualized prices could face enforcement under Section 5 of the FTC Act if they fail to disclose the practice.
Personalized pricing, as the Commission defines it, uses analysis of a consumer’s personal data to set prices based on estimates of how much that individual is willing to pay or whether the consumer is likely to comparison shop. The statement says Congress has not authorized the Commission to prohibit personalized pricing outright, but that the agency intends to enforce aggressively against deceptive or unfair practices tied to it.
For the servicing and collection industry, the policy could potentially impact discounts or settlement offers, which are increasingly being made using algorithms and artificial intelligence.
FTC Chairman Andrew Ferguson said consumers expect a listed price to be the “same price that everyone else sees,” not a retailer’s estimate of how much they will pay, and that businesses that fail to tell consumers how their data is used to set a price may violate the FTC Act.
Under the statement, where consumers reasonably expect that prices will not vary based on their personal data, a business should clearly and conspicuously disclose that a price is personalized, the basis for the personalization, and the types of data used. A failure to make those disclosures is likely to be an unfair or deceptive act or practice, the statement says.
The Commission distinguished personalized pricing from variation it says consumers already expect, including shifts in supply and demand, regional taxes and regulations, and products such as insurance and credit whose prices turn on an individual’s characteristics and risk.
The statement cites the Fair Credit Reporting Act’s adverse action requirements as support for its approach, noting the law requires companies to notify consumers when an adverse action, such as charging a higher price, is based on a consumer report, and to state the specific basis for that action. It also references the Restore Online Shoppers’ Confidence Act and the Rule Against Unfair or Deceptive Fees.
The Commission listed scenarios it said would raise concerns, including a hotel charging more based on data suggesting a consumer is traveling for a funeral and a retailer raising the price of a home security system based on court filings showing a customer was recently a crime victim.
