The Federal Trade Commission (FTC) has launched a significant investigation into “surveillance pricing” practices, signalling a new frontier in consumer protection and data privacy. This will have implications for risk managers and compliance professionals across financial services. Here are five key aspects to consider:
1. FTC’s Investigative Orders on Surveillance Pricing
The FTC has issued orders to eight companies, including major players like Mastercard, JPMorgan Chase, and McKinsey & Co., seeking information about their surveillance pricing products and services. As FTC Chair Lina M. Khan stated, “Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen.”
Risk managers will need to assess whether their organizations are engaged in practices that could be construed as surveillance pricing. Compliance teams should prepare for increased scrutiny of pricing algorithms and data usage practices, as the FTC aims to understand “how the current data ecosystem may facilitate the ability to target consumers with individual prices.”
2. Scope of Data Collection and Usage
The FTC is particularly interested in understanding the types of data collected, the methods of collection, and how this information is used in pricing decisions. This includes data from various sources, including third parties and affiliates.
The orders seek information on “the data sources used for each product or service, including the data collection methods for each data source, the platforms and methods used to collect such data, and whether other parties collect that data.”
3. Impact on Consumers and Pricing Strategies
The investigation aims to see how surveillance pricing affects goods and services. This includes potential discriminatory pricing practices based on consumer characteristics or behaviors. The FTC puts it plainly, saying it is looking for “Information on the potential impact of these products and services on surveilled consumers, including the prices they pay.”
4. Technological Advancements and Privacy Concerns
The FTC’s actions reflect growing concerns about how advancements in AI, machine learning, and data analytics are being used in pricing strategies. It says, “Advancements in machine learning make it cheaper for these systems to collect and process large volumes of personal data, which can open the door for price changes based on information like your precise location, your shopping habits, or your web browsing history.”
Organizations leveraging advanced technologies for pricing decisions must ensure their practices align with regulatory expectations. Risk managers should work closely with IT and data science teams to implement adequate safeguards and transparency measures in algorithmic pricing systems.
5. Broader Implications for Data Privacy and Consumer Protection
This investigation is part of a larger trend of increased regulatory focus on data privacy and consumer protection. The FTC has been actively investigating and enforcing various data-related practices, including health information, location data, and facial recognition technology. It says, “Companies that feed consumer data into algorithms may be liable for harmful automated decisions.”
Firms should consider comprehensive data governance programs beyond mere compliance to address ethical considerations in data usage and consumer privacy. As the FTC advises, “The easiest way companies can avoid harming consumers from the collection, use, and sharing of sensitive information is by simply not collecting it in the first place.”
