Profiting From Fear: What You Need to Know About Price Gouging During the Coronavirus Emergency
By now, you have likely heard some of the distressing stories from across our nation. In Washington State, a 2-liter bottle of hand sanitizer, normally $7, now selling for $150. In Pennsylvania, a can of Lysol, normally $5, now selling for $15. Even California is not immune as authorities last week arrested eight people in San Diego for selling toilet paper, baby wipes, cleaning supplies, hand sanitizer and gloves for upwards of twenty times their regular retail price.
When disaster strikes, the fear and uncertainty that follows tends to increase the demand for certain goods and services. In these instances, the price of what we normally would expect to pay for these goods and services become vulnerable to price gouging. Whether you have witnessed the practice or have been victim to it, price gouging occurs when sellers take an unfair advantage of buyers during an emergency or disaster by increasing the price of goods and/or services by an excessive and unjustified amount. In California, price gouging is illegal and to combat it, California implemented the little known anti-price gouging statute, Penal Code 396, to punish those who seek to profit from consumer fear following an emergency or disaster.
Penal Code 396
California Penal Code 396 (“CPC 396”) was enacted to protect California consumers from “excessive and unjustified increases in the prices of essential consumer goods and services” that the state considers vital for the health, safety and welfare of consumers following a state or local emergency (Penal Code 396(a).) Under CPC 396, following an emergency declaration, it becomes illegal for a person, contractor, business or other entity to sell or offer to sell any consumer goods or service for a price that is more than 10 percent above the price charged by that person for those goods or service immediately prior to the emergency declaration. However, an increase greater than 10 percent is lawful if the individual, contractor or business can prove that the increase in price was directly attributable to any additional costs imposed on it for the goods, or was directly attributable to additional costs for labor or materials used to provide the services.
The following are considered “essential” goods and services:
- Food and drink, including food and drink for animals;
- Goods or services used for emergency clean up, emergency supplies, and medical supplies, including, but not limited to, flashlights, radios, batteries, candles, blankets, soaps, diapers, and prescription and non-prescription medications;
- Home heating oil;
- Building materials, including, but not limited to, lumber and construction tools;
- Repair and reconstruction services;
- Lodging, including permanent or temporary rental housing, hotels, motels1, and mobile homes;
- Transportation, freight, and storage services; and
- Gasoline and other motor fuels.
Generally, CPC 396 stays in effect for 30 days following a proclamation or declaration of an emergency2, however, the provisions of the statute may be extended for 30 day periods, as needed, if it is deemed necessary to protect the lives, property and welfare of California’s citizens. In fact, the Governor’s recent Proclamation of State of Emergency ordered that the time limitation, as it relates to emergency and medical supplies pursuant to Penal Code 396(b), is extended through September 4, 2020 (See, March 4, 2020 Proclamation of State of Emergency.)
Penalties for Violations
While some argue that the penalties for violating CPC 396 do not go far enough, individuals or businesses who choose to engage in the practice of price gouging face criminal prosecution that may result in fines up to $10,000 and/or a year in jail. Additionally, since violations are considered unlawful business practices and unfair competition within the meaning of Section 17200 of the Business and Professions Code, those accused are also subject to private individual or class action lawsuits. If you suspect that you are the victim of price gouging or believe that a business is currently engaging in this practice, a complaint can be filed with the Attorney General’s office at www.oag.ca.gov/report.
Businesses who continue to supply goods, materials, and services will need to assess their pricing structures before unilaterally raising them to capitalize on scarcity during the Coronavirus emergency. If you charged a lower price before the emergency was declared, be sure to evaluate your costs and make certain that any increase is justified based on additional costs you are facing now, compared to the time your price was previously set.
Whether you are a consumer facing increasing costs, or a business trying to decide on the right course of action, keep in mind these limitations on price gouging. You can also consult with a Task Force attorney by emailing [email protected] or contact our office directly at 949-854-7000.
1An increase greater than 10% is lawful if the rate increase is directly attributable to seasonal adjustments in rates that are regularly scheduled, or previously contracted rates (Penal Code 396(d).)
2In the instance of contractors providing emergency cleanup, repair or reconstruction services, the prices on products and services they provide cannot be increased by more than 10% for 180 days following an emergency declaration (Penal Code 396(c).)