Audit of the Department of Consumer and Worker Protection’s Response to Price Gouging on Essential Products

Executive Summary

The Department of Consumer and Worker Protection (DCWP), formerly the Department of Consumer Affairs (DCA), seeks to protect and enhance the daily economic lives of New Yorkers to help create thriving communities.

On March 15, 2020, DCWP promulgated an emergency rule, pursuant to the authority granted by sections 1043(i) and 2203 of the New York City Charter (City Charter) and sections 20-701 and 20-702 of the New York City Administrative Code, declaring as unconscionable the practice of price gouging for any personal or household good or service that is needed to prevent or limit the spread of or treat coronavirus (COVID-19).^[1] The emergency rule added a new section 5-42 of Title 6 of the RCNY and amended the penalty schedule in Section 6-47. The emergency rule covers personal and household goods and services—such as disinfectants, soap and cleaning products, diagnostic products and services, medicines, and tissues—that aid in diagnosing or monitoring disease symptoms, prevent the spread of disease or treat disease during a declared state of emergency in the City. The emergency rule makes it illegal to increase prices by 10 percent or more above what a buyer in the City could pay for the same or similar good or service 30-60 days prior to the declaration of the state of emergency.^[2]

Effective May 13, 2020, DCWP extended the emergency rule for 60 days to allow time for the issuance of the permanent rule through the City Charter’s normal rulemaking procedure. The permanent rule was eventually established on June 24, 2020, making it illegal to price gouge on any products or services essential to health, safety, and welfare during a declared state of emergency.

The overwhelming majority of the price gouging complaints DCWP received was through the City’s 311 system, but DCWP also received complaints via email and from other agencies.

Audit Findings and Conclusion

DCWP has established procedures and implemented internal controls to help ensure compliance with the emergency rule it instituted to address price gouging. However, we identified a number of operational limitations that should be remedied. Specifically, the agency has not formalized written protocols for how the General Counsel Division should prioritize price gouging complaints for inspection, nor has the agency established an independent review process for the priority determinations made. As a result, DCWP’s ability to ensure that counsel’s priority determinations consistently align with established protocols is limited.

In addition, DCWP has not established productivity measures, including timeliness standards, for its inspections in response to price gouging complaints. We found that DCWP conducted inspections in response to approximately 28 percent of the price gouging complaints it received and that those inspections occurred on average 43 days after the complaints were received, and in 16 percent of the cases, more than 90 days after receipt. Without time targets (or other productivity measures), DCWP’s ability to ensure that complaints are addressed as soon as is feasible and without unnecessary delays is diminished.

Audit Recommendations

Based on the audit, we make four recommendations:

• DCWP should memorialize in writing its criteria for its enforcement of the price gouging rule.
• DCWP should establish an independent review process for its complaint selection determinations.
• DCWP should establish criteria for how often businesses with multiple complaints should be inspected.
• DCWP should establish and monitor performance measures with specified timeframes for resolving price gouging complaints through timely inspections and follow-up action and ensure that they are documented in writing and complied with.

Agency Response

In its response, DCWP agreed with all four of the audit’s recommendations.

[1] Price gouging is a term that refers to the practice of raising the price of goods, services, or commodities, to an unreasonable or unfair level.

[2] Exceptions under the emergency rule exist (1) when a merchant has increased its price to an excessive price as a direct result of costs imposed on the merchant by the supplier or is directly attributable to additional costs for labor or materials used to provide the goods or service, provided the increase charged to the buyer is comparable; or (2) when the merchant charged the excessive price 30 days prior to the declaration of the state of emergency and has not since increased the price except as a direct result of the increases imposed by suppliers or the above-mentioned increased labor or supply costs.