FTC says "personalized pricing" based on consumer data could violate law

The Federal Trade Commission (FTC) is warning companies that use customers' personal information to set different prices based on what they believe is a shopper's propensity to pay that they could be breaking the law.

In a proposed enforcement policy statement released Wednesday, the FTC said consumers expect prices for products and services to apply uniformly to all customers, rather than fluctuating based on their online browsing habits, purchase history, or other factors that could reflect their willingness to pay.

"When consumers walk into a retail store, for example, they reasonably expect the price on the shelf to be the same price offered to any other consumer shopping at the same store at the same time," the FTC said.

The agency added, "Likewise, when they browse to a product listing on a retailer's website, they reasonably expect the price to be the same price that anyone else browsing to that listing would see, not a price set based on the retailer's analysis of their personal data and conclusion as to how much they would be willing to pay for that product as compared to some other consumer."

Businesses that adjust prices for individual shoppers, without disclosing the practice, mislead consumers, and could be engaging in deceptive practices that violate federal law, the commission said.

The FTC cannot ban the practice, which it calls "personalized pricing" in every instance, but it has the authority to discipline businesses "that fail to tell consumers how their personal data is being used to set a price," FTC Chairman Andrew Ferguson said in a statement Wednesday.

The FTC Act prohibits unfair or deceptive practices in the marketplace.

Consumers can prevent companies from collecting data on their shopping habits by using a virtual private network, or VPN, or a private browser, for example. But less-informed customers might not know how to avoid merchants that use price-setting algorithms to charge them more than other shoppers.

The FTC argues that companies' disclosures around their use of personalized pricing should clearly state that the price a shopper sees is based on a consumer's estimated willingness to pay based on data about their prior shopping habits.

The FTC outlined examples of personalized pricing practices that could violate the law. They include:

Consumer advocates support the commission's efforts to crack down on personalized pricing.

"It is encouraging to see the FTC tackle this bipartisan issue. Nobody should have to pay more for groceries or other essential goods because a company knows what they're searching for online, what their income is, the makeup of their household or where they go," Consumer Reports' senior policy analyst Grace Gedye said in a statement to CBS News.

Still, even with the FTC's proposal, the onus would fall to consumers to closely read businesses' policies.

"Ultimately though, it should not be consumers' responsibility to read detailed disclosures on each item while shopping online to avoid being hit with a higher price," Gedye added.