Price hikes hurt families – but is it illegal?
Pandemic raises debate over price gouging
SARAH JENNISON, a disabled mother living in Wareham, skipped buying the four-pack of toilet paper she saw listed on Facebook Marketplace for $20. But Jennison is immunocompromised with a seven-year-old daughter and said she could not avoid purchasing the 12.5-ounce can of Lysol spray disinfectant off eBay, even though it cost $30.
“It was ridiculous,” Jennison said. She paid for the Lysol with a debit card, and is now short on rent money. But, she said, “I can’t risk getting sick.”
Massachusetts consumers – whether buying online or in stores – are increasingly seeing higher prices for everyday items during the coronavirus pandemic, particularly items required to keep people healthy, like masks and hand sanitizer. Attorney General Maura Healey has promulgated regulations aimed at eliminating price gouging and some lawmakers are proposing similar legislation. But the rules raise thorny questions about what constitutes price gouging versus a normal price increase for high-demand products.
“Obviously, we understand supply and demand. There are some products there are less of and there’s scarcity so naturally the price may go up some,” Healey said. “The problem for us is when we see things going up five times, ten times, one hundred times more than what the product usually sells for, it’s price gouging.”
On March 20, amid the coronavirus pandemic, Healey filed an emergency amendment to the regulation prohibiting price gouging for “any goods or services necessary for the health, safety or welfare of the public.” Healey said she was motivated by reports of skyrocketing prices for things like face masks and hand sanitizer.
The new regulation prohibits selling these products at “an unconscionably high price” – a price for which there is a “gross disparity” between how much the product is sold for now and either how much it was sold for before the emergency or how much it costs to buy elsewhere. The rule allows for an increased price if it is substantially attributable to higher prices charged by suppliers or an “abnormal market disruption.”
Violations are punishable by fines of up to $5,000.
“We’re taking this case by case and we certainly want to be clear we can and will pursue people for enforcement and fines,” Healey said.
As of last week, Healey’s office had received 476 complaints about price gouging, primarily for things like hand sanitizer, masks, gloves, paper towels, bottled water, disinfectants, and toilet paper.
Several complaints were about online sales: a box of masks that would typically sell for $15 going for $135 on Amazon, or a four-pack of toilet paper selling for $25 on eBay. Other complaints involved small local stores: a convenience store selling milk for $10 a gallon, small pharmacies or convenience stores selling eight ounces of hand sanitizer for $30, and stores selling single rolls of toilet paper or paper towels for $5.
So far, Healey’s office has not fined anyone.
Beyond that, Healey said for every complaint she receives, her office informs sellers about the emergency order, asks for information about current and past prices and asks the seller to justify the higher price. “We’ve been able to take each of these complaints one by one,” Healey said.
Healey said some of the complaints were found to not constitute price gouging. Others were “gray” areas, where her office was able to work with sellers to address the high price. “Some of this is a matter of [sending a] cease and desist and just getting the word to people that they can’t do this,” Healey said.
One reason to avoid enforcement actions – which can be challenged in court – may be the difficulty of defining price gouging.
David Thomas, a Boston attorney with Greenberg Traurig who specializes in business litigation, said the most likely avenue for litigation would be if a class of defendants – a large group of people sold an expensive product – uses the regulation to sue a seller. A court would then need to do a “pretty intensive analysis of the facts,” he said, to determine whether a price is price gouging or whether it is justified. “The court really will have to delve into why the costs have gone up and how the retailer is selling it to the public,” Thomas said. “The intent is you can’t leverage the emergency to make more money. You can charge a higher price if your costs go up.”
The price gouging statute for petroleum has been tested in court just once, in a case decided by a US Appeals Court in 2011 in which residents of Martha’s Vineyard sued the owner of four area gas stations for price gouging in the wake of Hurricane Katrina. The court found in favor of the gas stations.
Bills sponsored by Senate Minority Leader Bruce Tarr, a Gloucester Republican, and Rep. Alyson Sullivan, an Abington Republican, would enshrine protections against price gouging in state law. Tarr’s bill essentially codifies Healey’s emergency regulation. Sullivan’s bill would prohibit excessive pricing during a public health emergency of products needed to address the public health problem. Her bill would define excessive as a price increase of at least 15 percent not justified by additional costs in obtaining the product.
Tarr filed the bill not because of any particular incident but “more to be proactive than reactive,” he said. “As supply chains continue to be strained, I wanted to be ahead of the curve to make sure we had the right tools in place.”
The Judiciary Committee is accepting written testimony on Sullivan’s bill on Tuesday. Tarr’s bill is pending before the Joint Committee on Consumer Protection and Professional Licensure.
President Trump has issued an executive order making it a federal crime to engage in price gouging of essential medical supplies needed to respond to the coronavirus outbreak. But otherwise, price gouging laws are left up to each state, only some of which have laws on the books.
Several states – like California, Florida, and Maine – provide for criminal penalties, including jail time, for price gouging during an emergency. In other states, as in Massachusetts, it is a civil offense. Some states specify a specific threshold for what constitutes an illegal price – like 10 percent or 25 percent more than the pre-disaster price. Others are like Massachusetts, using vaguer language like an “unconscionable” or excessive price.
Any attempt to pass a law in Massachusetts is likely to face opposition. Jonathan Shaer, director of the New England Convenience Store and Energy Marketers Association, said one potential problem is the lack of a clear definition of price gouging. “You can’t build legislation on ‘We’ll know it when we see it,’” Shaer said. “It’s not fair. It’s not right.”
Shaer said high prices are not necessarily indicative of price gouging but of higher wholesale prices. “There are certain products now that are just in high demand,” he said.
For example, Shaer said it is impossible to buy name brand hand sanitizer, and the raw ingredients to manufacture it are expensive. Retailers who cannot find Bounty paper towels have to turn to more expensive suppliers in Mexico. “Constriction of supply is driving up prices,” Shaer said. “It becomes a simple economics 101 exercise.”
Whether or not it constitutes illegal price gouging, families are feeling the impact.
Katie Evans is a mentor who works with low-income families at Economic Mobility Pathways, a nonprofit that helps families escape poverty. Evans said families she mentors are seeing higher prices combined with product shortages for things like wipes and cleaning supplies. The increases are not just for cleaning supplies, but for basics like milk, eggs, and baby supplies. She said some heads of households are starting to do things like deny themselves meals to keep their kids fed.
Evans acknowledged that with increased demand for too little supply of certain products, “It makes sense why stores are raising their prices.” But, she added, “I also think that makes it really hard for low-income families.”
Ruth Bodden, 52, of Dorchester, used to pay $7 or $8 for a 12-pack of Charmin toilet paper. The last time she went shopping, the same package cost $17.99. A 24-pack of Poland Springs water increased in price from $3.99 to $5.99. A container of eggs jumped from $1.29 to $4, she said.Bodden, an out-of-work Spanish medical interpreter now on public assistance, shops at one of several supermarkets near her home. She is spending $150 for the groceries that would have previously cost $100. Her kids are home from school, eating more at home. Her food stamps are running out in the middle of the month. She is forgoing her family’s monthly treat of a takeout pizza.
“My budget is all over the place right now,” Bodden said.