The FTC is cracking down on companies that charge you a "personalized price"

The Federal Trade Commission (FTC) is issuing a warning to companies that utilize personal consumer data to set individualized prices. In a bulletin published on Wednesday, the FTC informed businesses that they must transparently disclose when they employ detailed information about consumers to generate personalized price offers. The agency clarified that it cannot outright ban personalized pricing under its current authority, but it will enforce penalties against those failing to adhere to its disclosure requirements.

The FTC's advisory addresses the increasing prevalence of automated pricing systems that leverage consumer data, such as browsing histories, location, device type, shopping behavior, and other signals, to estimate an individual's willingness to pay. Advanced AI-based pricing software can swiftly process this data and customize offers for distinct users.

Illustrative examples include a food delivery company disclosing price adjustments based on personal data and a ride-share company raising fare prices when it knows a customer lacks a competing app on their device. This practice diverges from conventional discounts offered to broader groups, such as students or seniors, as it involves data-driven decisions at the individual level.

The FTC's scrutiny stems from the Biden administration's study of personalized pricing, which revealed instances where companies could charge more when customers appeared unfamiliar with a market, including new parents and first-time car buyers. FTC Chairman Andrew Ferguson, who previously expressed concerns about the release of preliminary findings, also closed a public-comment effort on surveillance pricing initiated by his predecessor.

The warning gained traction post Instacart's implementation of tests allowing retailers to offer different prices to individual shoppers in four cities. Consumers who added the same products to their carts simultaneously could receive varying prices. Instacart stated that these tests aimed to help retailers understand consumer preferences; however, the company discontinued them following customer objections.

The FTC emphasized the potential substantial injury to consumers who pay more due to the undisclosed use of their personal information. As personalized pricing practices become more sophisticated, consumers are increasingly likely to bear the burden of higher costs. Some Democrats and consumer advocates argue that the FTC's actions fall short of addressing the issue adequately.