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Price Gouging – It Could Cost You

April 30, 2020

by Frank DonaghueBarbara Darkes and Timothy Finnerty

The COVID-19 crisis has caused many state Attorney’s General, including the Pennsylvania Attorney General (“PA AG”), to encourage consumers to submit complaints and allegations of price gouging.  Rest assured that all such allegations and complaints are being investigated and action taken.  In many instances, the action taken by the PA AG is a cease and desist letter, in essence, a warning to stop the price gouging.

The PA AG has established a dedicated price gouging email for consumer complaints and, to date, has reported receiving more than 1,000 price gouging related complaints.  The PA AG has far reaching authority under the price gouging statute, including the ability to issue subpoenas, and to examine witnesses and documents.  If PA AG finds that there has been a violation of the price gouging statue, the Attorney General may bring an action to impose an enhanced civil penalty up to $10,000 for each violation and seek other relief, including injunctive relief, restitution, and costs under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.

Enacted in 2006, Pennsylvania’s price gouging statute prohibits the sale of goods or services for an amount representing an “unconscionably excessive price”.  This means it is legally considered price gouging in Pennsylvania when the price of the same or similar product exceeds an amount equal to or greater than 20 percent of its price seven days prior to an emergency declaration by the Governor.

During a state or national emergency, established businesses often face an increase in replacement or acquisition costs within the chain of distribution.  These additional costs often legitimize an increase in price that could initially be considered price gouging by both the consumer and PA AG.  It is also common that during a time of increased demand (like now, with personal protection equipment and cleaning supplies), that many businesses may be offering such products for sale for the first time without having established pricing.

Businesses can assert defenses to price gouging allegations.  For example, an increase in final price substantially attributable to increased acquisition costs is a defense.  This can include all costs that arose within the chain of distribution in connection with the sale of consumer goods or services, including replacement or acquisition costs, credit card costs, taxes, or transportation costs.  Remember, though, that if the business subsequently receives a price reduction of those costs which originally lead to an increase, the business may rebut the allegation of selling at an unconscionably excessive price if the business reduces the price by a like amount within seven days of obtaining the price reduction.

Given the enhanced penalties and far reaching authority of the PA AG in this field, businesses should familiarize themselves with price gouging laws and pay close attention to and document their costs and pricing.

© 2020 McNees Wallace & Nurick LLC
McNees Client Alert is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.