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Consumer Protection Tips During the COVID-19 Pandemic — A Former Enforcement Attorney Perspective: Price Gouging

04/1/2020
Mass Torts
BY

Empty shelves in supermarket with sign informing customers that store places purchasing limits on some products as people fear the coronavirus outbreak spreading.

We have all heard the stories of individuals who have stockpiled supplies like gloves and hand sanitizer to sell at the highest price. And it’s not just individuals; businesses also appear to be taking advantage of a surge in demand.

The U.S. Public Interest Research Group analyzed prices on Amazon and found that most prices of masks and hand sanitizers rose at least 50%  higher than the 90-day price average of the same goods before the World Health Organization’s January 30, 2020, global health emergency declaration. Price spikes of 50% or more were even identified in nearly 1 out of every 6 products sold directly by Amazon (and not third-party vendors) to the online marketplace. From Lysol wipes to N95 masks, prices of the things needed most right now seem to be going through the roof. What laws are there to protect us against these behaviors and what can we do to protect ourselves?

Only three short weeks ago, price gouging was a term reserved for the summer months in Florida, when a hurricane threat (or impact) causes spikes in sales of items including gas, food, and shelter for evacuating residents. Along with those sales spikes come stories of businesses or individuals charging significantly more than normal for the items –taking advantage of consumers with limited or no alternatives. Price gouging laws were designed to curb these predatory tactics. These laws endeavor to protect consumers from unfair and deceptive business practices; and (2) business owners from bad actors impeding fair competition in the marketplace.

With the emergence of COVID-19, or novel coronavirus, states are now quickly adapting laws originally designed to prevent overcharging during natural disasters to the current medical crisis unfolding across the country.

What are Price Gouging Laws?

Federal price gouging laws do not exist. So, it is up to each state to enact its own price gouging law. About two-thirds of states had price gouging laws prior to the COVID-19 outbreak.[1] These laws are typically enforced by state attorneys general, with some exceptions, and fall under the umbrella of state unfair and deceptive trade practices laws. While the laws vary, there are consistent themes among them:

  1. Price gouging laws are triggered by the declaration of a state of emergency.

 

  1. These laws often define a limited group of goods and/or services, items that are needs, not wants, during a state of emergency. In Florida, the law protects the price of “essential commodities,” with “commodity” defined as “any goods, services, materials, supplies, equipment, resources, or other article of commerce, and includes, without limitation, food, water, ice, chemicals, petroleum products, and lumber necessary for consumption or use as a direct result of the emergency.” In short: need = water (covered) and want = beer (not covered).

 

  1. Price gouging laws typically define, or attempt to define, the amount of a price increase that will result in a violation. The price increase following a state of emergency declaration is often compared to the price of the goods or services in some defined time period before the state of emergency took effect. Florida prohibits sales at an “unconscionable price,” defined as a “gross disparity” in price as compared to the average price in the area during the 30 days immediately prior to the declaration of a state of emergency.

 

  1. An otherwise illegal price hike is acceptable under most price gouging laws, however, as long as the business can prove the price change was caused by an increase in the cost of the commodity (or the costs connected with selling the commodity, like shipping), or due to market trends. Unlike geographic-specific emergencies, the COVID-19 pandemic is global, which creates unique challenges to a market analysis.

 

  1. Individuals and/or businesses who engage in price gouging are usually subjected to fines and required to provide refunds of the excess charges, although more severe remedies including criminal charges and temporary or permanent restraining orders may be available.

Attorneys General are rapidly responding to an influx of complaints with enforcement efforts. Florida Attorney General Ashley Moody issued more than 40 subpoenas to online Amazon vendors accused of price gouging on essential commodities including face masks, hand sanitizers, and disinfectants.

States that previously did not have existing price gouging laws have found creative ways to enact rules quickly as the number of COVID-19 cases increase. Delaware’s state of emergency includes a provision prohibiting cost increases of more than 10% from the cost customarily applied in the usual course of business prior to the state of emergency. Minnesota issued Emergency Executive Order 20-10, subjecting individuals who sell, offer to sell, or cause to sell any essential consumer good or service for an “unconscionably excessive price” to civil penalties of up to $10,000 and other available remedies.

Massachusetts’ price gouging law typically applies only to gasoline and other petroleum goods. Recognizing the need to adapt to the current challenges relating to COVID-19, the Massachusetts Attorney General adopted amendments to its law on an emergency basis. The amendments prohibit the sale of “any goods or services necessary for the health, safety or welfare of the public” for an “unconscionably high price.”

 

Applying Price Gouging Laws During the COVID-19 Pandemic:

Is Toilet Paper Essential?

 

But what goods and services are price protected in the era of COVID-19? Laws generally use terms like “essential” or “necessary” to allow enforcing authorities to adjust to different scenarios. And priority shifts will happen as the country enters different phases of dealing with the COVID-19 virus. When government agencies identify specific goods and/or services, we know those are the top priorities and are being identified to provide clarity to individuals and businesses.

At the highest levels for health care workers and laboratories, the World Health Organization created a disease commodity package for COVID-19 identifying everything from gloves, masks, and scrubs to hospital equipment as being necessary to fight the pandemic. At the consumer level, Florida’s Attorney General has stated that the following are covered by the state’s price gouging laws:

  • Protective masks
  • Sanitizing and disinfecting supplies, such as hand sanitizer, gel, wipes, cleaning supplies for surface cleaning, and all commercial cleaning supplies
  • All personal protective equipment (PPE), including gowns, booties, gloves and other protective gear.

While the main priority for state price gouging efforts will initially be personal protective equipment and cleaning supplies, these are not the only goods that will be investigated under COVID-19 price gouging efforts. Consumers who are unsure whether an overpriced good or service will be deemed “essential” or “necessary,” should nevertheless file a report. Attorneys General will continue investigating and prosecuting price gouging until all valid claims are addressed.

Consumers: Avoid and Report Price Gouging

The best way to avoid being a victim of price gouging is to stay informed and be flexible, while understanding this is difficult time when we all must stay at home and can’t compare prices by going store-to-store. Additionally, there are supply issues given the high demand and many items are completely out of stock. The fact that items are out of stock by itself likely does not violate price gouging or other consumer protection laws.

Be especially wary of websites such as eBay, Craigslist, and Facebook Marketplace. These websites are “online marketplaces,” where the websites serve to facilitate transactions between individuals and there may not be strong oversight on prices being charged. Attorneys General across the country have told several online marketplaces to improve their oversight to prevent the sale of overpriced products. While it is normally better to search for prices with larger, more recognizable companies, note that during this crisis even well-known retailers are being scrutinized for potential price gouging.

Victims of price gouging by an individual, retailer, or wholesaler can assist investigative and enforcement officials by gathering as much information as possible. Helpful evidence includes receipts, screen shots, photographs, estimates, flyers, or other paperwork specifically identifying the good or service, the date of purchase, and the price.

Call your state Attorney General to report price gouging and price shop on other websites. In Florida, the Price Gouging Hotline number is (866) 9NO-SCAM, or (866) 966-7226. You can also file a complaint for Florida-related price gouging online here. If a complaint is made over the phone, report what evidence you have and keep those documents aside should you be asked to provide them. Note that in Florida and many other states, you do not have the right to sue an individual or company yourself for a violation of price gouging laws.

Before joining Searcy Denney Scarola Barnhart & Shipley, P.A., Katherine Kiziah was an Assistant Attorney General and the South Florida Bureau Chief for the State of Florida, Office of the Attorney General’s Consumer Protection Division. The Consumer Protection Division of the Florida Attorney General’s Office investigates and prosecutes violations of Florida’s Unfair and Deceptive Trade Practices Act, which includes the state’s price gouging laws.

 

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