Maryland this week became the first U.S. state to ban grocery stores and third-party delivery services like DoorDash from using customers’ personal data to set higher prices.
The practice, backed by artificial intelligence and known as dynamic pricing or surveillance pricing, can lead to two consumers paying different amounts for the same item from the same retailer, at around the same time. If a store knows, for example, that one of those customers lives in a wealthier neighborhood, it can charge them a higher price.
The bill implementing the ban, the Predatory Pricing Protection Act, will go into effect on October 1. Merchants face fines of $10,000 for violating the law and penalties of $25,000 for repeat violations.
“At a time when technology can predict what we need, when we need it, when we will pay for it and also when we will pay more for it,” Democratic Gov. Wes Moore of Maryland said at a bill signing ceremony Tuesday. “And at a time when we’re watching big companies use that analytics against us to make record profits, Maryland isn’t just going backwards. Maryland is moving forward.”
The bill comes amid growing resistance to dynamic pricing from states across the country, according to privacy advocates. Tom McBrien, an attorney for the Electronic Privacy Information Center, a nonprofit group, estimated that 33 states had introduced bills seeking to ban some form of dynamic pricing or force companies to disclose their use of the practice.
Last November, New York enacted a disclosure bill, making it the first state in the country to target dynamic pricing, and lawmakers have introduced legislation to ban the practice entirely. California, Colorado, Illinois and New Jersey are among the other states considering dynamic pricing laws.
The Maryland Retailers Alliance, a trade association representing thousands of the state’s merchants, issued a statement Thursday criticizing the bill.
The practice of charging two customers different prices for the same item based on personal data was already prohibited in the state under the Maryland Consumer Protection Act, the alliance said, and “the notion that individualized and widespread price gouging could occur in such a market is inconsistent with the economic realities of the industry.”
The alliance added that the state attorney general’s office had not received “substantiated complaints” pointing to a pattern of predatory price gouging at grocery stores.
However, some consumer advocates and rights groups said the bill did not go far enough.
“We thank Gov. Wes Moore and the Maryland Legislature for making the issue of price surveillance a top priority during this legislative session,” Grace Gedye, a policy analyst at Consumer Reports, said in a statement. “Unfortunately, this law has too many industry-friendly loopholes and weak enforcement provisions.”
Among those problematic exceptions, according to Consumer Reports and other privacy advocates, is the fact that the bill does not apply to customer loyalty programs, which are popular with consumers and collect significant amounts of their data.
“Data has become the currency of retail strategy, and loyalty programs are really among the most powerful vehicles for collecting it,” said Stephanie Nguyen, a senior fellow at the Center for Law and Economics at Columbia Law School.
Loyalty programs can extract valuable information about consumer behavior, including how often people shop and how much they are willing to pay for a pair of sneakers or a six-pack of toilet paper, said Nguyen, who studied such programs and worked as chief technologist at the Federal Trade Commission during the Biden administration.
Consumer Reports and Mr. McBrien took issue with how Maryland law only prohibits price increases, not price decreases. Mr. McBrien described a scenario in which a retailer could raise prices across the board while using dynamic pricing to lower prices for a few specific consumers, thereby increasing costs for most customers.
McBrien and Nguyen also criticized the law for giving enforcement power to Maryland’s attorney general and prohibiting individual consumers from suing violators.
Responding to criticism of the bill, a spokeswoman for Mr. Moore, Rhyan Lake, said the law “represents an important step toward transparency and will help protect Marylanders’ pockets at grocery stores as the governor continues to fight to make life a little easier for working people.”
The reality, McBrien said, is that many retailers are using algorithms to make inferences about human behavior, and they tend to mean how much someone is willing to spend.
“Companies no longer compete on prices,” he said.
