FTC Proposes Enforcement Policy on Personalized Pricing

The Federal Trade Commission (FTC or Commission) is warning businesses by way of a draft enforcement policy statement that using consumers' personal data to determine the prices they pay may violate federal law if the practice is not adequately disclosed.

On August 19, the FTC announced that it is seeking public comment on a proposed Enforcement Policy Statement addressing "personalized pricing"—the use of personal data to set prices based on the amount a company believes an individual consumer is willing to pay. The proposal does not prohibit personalized pricing. Rather, it explains how the FTC intends to apply existing Section 5 deception and unfairness principles to personalized pricing and the data practices supporting it.

The proposal is notable both for the breadth of practices the FTC views as problematic and for its detailed disclosure expectations. It also is not limited to particular industries or products, potentially making it broader than recent state algorithmic or surveillance pricing laws.

Businesses that engage in personalized pricing should follow this proceeding closely and consider implementing the FTC's recommendations now, as they reflect the FTC's view of the current state of the law regardless of what happens with the draft policy statement.

What Does the FTC Mean by "Personalized Pricing"?

The FTC's concern is not ordinary dynamic pricing based on supply and demand, geography, or similar market factors. Rather, it focuses on businesses using consumer-specific data to estimate an individual's willingness to pay for goods or services traditionally offered at the same price to all consumers. According to the FTC, consumers generally expect shoppers viewing the same product at the same time, whether in a store or online, to see the same price—not one that varies from what other consumers see based on their personal information.

Undisclosed Personalized Pricing May Be Deceptive or Unfair

The FTC argues that personalized pricing may be deceptive if businesses fail to disclose that prices are individualized, when consumers reasonably believe prices are uniform. The FTC also suggests that simply stating a price is "personalized" may not be enough; consumers may need information about the basis for the personalization and the data used. For example, the FTC says a consumer may be misled if they believe a personalized price reflects a loyalty discount when it actually reflects data suggesting greater disposable income.

The Commission separately suggests that concealed personalized pricing may constitute an unfair practice under Section 5 because consumers may suffer substantial monetary injury that they cannot reasonably avoid if they do not know personalization is occurring. The FTC expressly declined, however, to take a position on whether fully disclosed personalized pricing may still be unfair.

Personalized Pricing Also Raises Privacy Issues

The FTC makes clear that it may scrutinize not only pricing outcomes but also the collection and use of the underlying personal data. According to the FTC, businesses may violate Section 5 if they collect, use, or disclose personal data for personalized pricing without adequate disclosures. The proposal also suggests that some personalized pricing practices could require affirmative consumer consent, which could go beyond current privacy law if required for collecting and using non-sensitive personal information.

The FTC further warns companies relying on third-party data or pricing vendors not to assume that lawfully obtained data may automatically be used for personalized pricing.

What Does the FTC Think Businesses Should Disclose?

According to the FTC, businesses should clearly and conspicuously disclose:

• The fact that the price is personalized;
• The basis for the personalization; and
• The type of data used to personalize the price.

The FTC contrasts vague statements that consumers were seeing a "specially selected" price with disclosures explaining that pricing is based on estimated willingness to pay derived from purchase history or account activity.

Although the proposal does not prescribe how disclosures should be delivered, businesses using personalized pricing would at a minimum need to address the practice in their privacy policies and other consumer-facing disclosures, which they should already be doing to comply with existing privacy laws.

The FTC's Examples Signal Likely Enforcement Priorities

The proposal includes examples of undisclosed personalized pricing practices that could raise Section 5 concerns, such as charging higher prices based on data suggesting a consumer:

• Is less likely or unable to leave their home;
• Is traveling for a funeral or other "can't-miss" personal business;
• Has not installed competitors' apps;
• May be experiencing a medical emergency; or
• Is already inside the retailer's physical store or parking lot.

The examples suggest the FTC is particularly concerned with situations where consumer data is used to identify urgency, vulnerability, dependence, or lack of alternatives.

What Businesses Should Do Now

Even if finalized, the policy statement would not create new legal obligations or independently establish liability. Nevertheless, companies using data-driven pricing should consider:

• Identifying where prices vary at the consumer level;
• Mapping the data used in pricing decisions;
• Reviewing pricing algorithms, vendor practices, disclosures, and privacy policies;
• Confirming whether existing consent mechanisms address individualized pricing;
• Applying heightened scrutiny practices involving information signaling medical need, urgency, location, or other indicators of vulnerability or lack of alternatives.

The FTC will accept comments for 30 days after publication in the Federal Register.

+++

Kristi Wolff, Nancy Libin, and Mike Borgia are partners in DWT's Washington, D.C., office. David Rice is a partner in the firm's Seattle office. Caroline Schmitz is an associate, also located in our Washington, D.C., office. For any questions, please reach out to the authors or another member of our advertising and privacy & security teams. For further information on the proliferating state patchwork of personalized pricing laws, sign up for our alerts and check out our Stay ADvised and Trust Issues newsletters.