In March 2020, New York City (NYC) was fast becoming the epicenter of the COVID-19 outbreak, and many of its residents were in an outright panic. Late that month, New York State implemented stringent measures to stop the rapid spread of the virus. The NYC Department of Consumer and Worker Protection (DCWP) by that time was already seeing a record number of price gouging complaints.
When the complaints started pouring in, DCWP already had in place a rule (Rules of the City of New York (RCNY) § 5-38, Goods Temporarily in Short Supply) that prohibited businesses from “increas[ing] prices in excess of an amount reflecting normal market fluctuations” for products declared by DCWP to be in short supply. The rule had been promulgated decades earlier pursuant to DCWP’s authority under the New York City Consumer Protection Law, but DCWP attorneys could find no evidence that it had ever been used. While Rule 5-38 proved a useful tool at the start of the crisis when complaints about price gouging centered on two or three products, there were important shortcomings that made it an imperfect enforcement vehicle as COVID-19 continued to spread and businesses began illegally increasing prices on dozens of products. This rampant price gouging changed the game, requiring DCWP to change its enforcement tactics.
Different Rules for a Different Game
In early March 2020, following dozens of complaints and news stories about the unavailability and high cost of face masks, which were considered vital to help stop the spread of COVID-19, DCWP dusted off Rule 5-38. This rule makes it an unconscionable sales practice to, among other things, increase the price of items declared by DCWP’s commissioner to be temporarily in short supply above “an amount reflecting normal market fluctuations.” The rule exempts increases shown to be the result of additional costs in providing the item (for example, increased production costs) or the seller’s attempt to give consumers additional opportunities to purchase the item (for example, increasing the hours during which an item can be purchased). The exemption applies only to increased cost incurred by the seller and only where such increase is through no fault of the seller.
To use the rule, DCWP had to establish a process for determining and documenting the actual availability of affected items. Consider the case of face masks. DCWP’s legal team first researched face masks to develop a full understanding of the types, brands, and costs, then created checklists and talking points for use by DCWP inspectors in the field. The legal team also mapped out where the inspectors should go and what types of stores they should visit. Their work included all five boroughs and all types of retail establishments, from drug stores, to supermarkets, to big-box stores such as Walmart and Target. Armed with their instructions, DCWP’s inspectors and other city personnel visited dozens of retail stores across NYC, noting what they were finding (or not finding) on store shelves, talking to store managers about whether additional stock was expected, and taking photos. This exercise resulted in a March 5, 2020, declaration by DCWP’s commissioner that face masks were temporarily in short supply, and this declaration triggered the prohibitions in 6 RCNY § 5-38.
On March 9, after several hundred more consumer complaints, news stories, and site visits by city personnel, DCWP’s commissioner signed a second short-supply declaration that expanded the list of items subject to the prohibitions of Rule 5-38 to include hand sanitizer and disinfectant wipes.
By that point, the rule’s central shortcoming was apparent: For a product to be covered by Rule 5-38, DCWP would need to go through the monumental effort of researching, creating checklists, and sending more than 30 individuals crisscrossing NYC in search of evidence of short supply before issuing a new declaration. The rule also had other serious flaws. First, each declaration had to be renewed after 30 days and could only be renewed once, meaning the rule could apply to a product for a maximum of 60 days. Finally, the rule did not define “normal market fluctuations.”
To remedy these shortcomings, on March 15, 2020, DCWP promulgated an emergency rule that was better targeted to address the issues raised by a global health pandemic. That rule, 6 RCNY § 5-42, declared it “an unconscionable trade practice for a merchant to sell or offer for sale covered goods or services with an excessive price increase during an imminent threat to public health.” The rule defined “covered goods or services” as those “reasonably believed by a consumer to aid in diagnosing or monitoring disease symptoms, preventing the spread of disease, or treating disease” or “marketed by a merchant as aiding in diagnosing or monitoring disease symptoms, preventing the spread of disease, or treating disease.” The definition of covered goods and services greatly expanded the scope of the rule and included many products that were increasingly the subject of consumer complaints, such as disinfectant spray, bleach, gloves, paper towels, and rubbing alcohol.
The emergency rule replaced “normal market fluctuations” as the trigger for excessive price increases with “10 percent or more above the price at which the same or similar good or service could have been obtained by consumers in the City of New York 30–60 days prior to the adoption of this rule.” Finally, the rule offered an exemption for merchants who could show that the increase in price charged to the consumer was directly attributable to additional costs the merchant incurred to obtain the goods (increased supplier costs) or provide the goods to consumers (increased opening hours).
Although the emergency rule proved to be a better enforcement tool than Rule 5-38, emergency rules expire under the Citywide Administrative Procedure Act after 60 days and can only be renewed once before a permanent rule must be promulgated. Additionally, because the rule would be permanent, it had to be drafted to apply to any emergency, not just one related to public health. To that end, on June 26, 2020, DCWP promulgated a permanent rule that replaced the emergency rule. The permanent rule:
- Made it “an unconscionable trade practice for a merchant to sell or offer for sale covered goods or services at an excessive price during a declared state of emergency in the City of New York.”
- Redefined “covered goods and services” as those that are “essential to health, safety or welfare, or are marketed or advertised as such, including but not limited to staple consumer food items such as milk, eggs and bread, goods or services used for emergency cleanup, or emergency supplies such as water, flashlights, radios, batteries, candles, blankets, soaps, diapers, toiletries, medical supplies such as medications, bandages, gauze, isopropyl alcohol, medical masks, and antibacterial products, or gasoline or other motor fuels.”
- Changed the prohibited conduct from selling with an “excessive price increase” to selling at an “excessive price,” which was defined as “10 percent or more above the price at which the same or similar good or service could have been obtained by a buyer in the City of New York 30–60 days prior to the declaration of a state of emergency.” The Department made this tweak to deprive so-called new entrants into the market from any argument that they did not violate the rule because, if they did not sell certain products prior to the state of emergency, they could not have “increased” the product’s price.
- As with the emergency rule, the permanent rule allowed exemptions where increased costs incurred by the business are merely passed on to consumers.
Thousands of Price Gouging Complaints
Between early March and June 2020, when DCWP promulgated its permanent rule, the agency received more than 11,000 complaints about price gouging—a staggering number when compared with the usual 15,000 to 20,000 complaints DCWP typically receives annually across all categories. Because these complaints were arriving amid a global health pandemic with NYC at the epicenter and most of DCWP’s employees working remotely without access to the usual supplies and equipment, addressing these complaints required creativity and determination.
DCWP’s goal was to short-circuit the widespread illegal conduct as quickly as possible, so complaints were not mediated (a process that can take several weeks). Instead, DCWP’s Consumer Services Unit reviewed the complaints for relevance and completeness before forwarding them to an attorney in the General Counsel Division, who considered several factors, including the number of complaints against a single business, the age of the complaint(s), and the egregiousness of the asserted price gouging, to determine whether an inspection of the business should occur. Once a business was flagged for inspection, a request was sent to DCWP’s Enforcement Division to have an inspector visit the location. This triaging process was necessary because the overwhelming number of complaints, combined with DCWP’s finite, pandemic-impacted resources, meant that it would be impossible to address each complaint individually.
DCWP also worked with the New York Attorney General’s Office, referring complaints either not covered by the city’s applicable rules or already being handled by the Attorney General, for example, those related to staple food items. DCWP also accepted complaint referrals from the Attorney General and other government agencies. This map shows the breakdown of price gouging complaints by community district as of March 12, 2021.
