Following a four-month-long investigation into whether certain Illinois gasoline retailers charged more than what was justified for fuel in the days following Hurricane Katrina, state Attorney General Lisa Madigan said 18 gas stations have agreed to sign an Assurance of Voluntary Compliance (AVC) to settle Madigan's allegations against them.
In New York, Attorney General Eliot Spitzer submitted legislation to strengthen the price gouging law to better protect consumers against unconscionably excessive prices and to more clearly define violations.
The Illinois stations have agreed to abide by the law in the future and, in lieu of paying a penalty to the state, each of the 18 stations will make a $1,000 payment to the American Red Cross.
"Successful businesses are entitled to be profitable, but businesses must not take advantage of emergencies and increase their profits unfairly over their costs," Madigan said. "Illinois consumers will be protected because these stations have agreed not to engage in unfair or deceptive business practices in the future and to comply with the Emergency Price Gouging Rules."
Madigan's office received more than 2,000 calls from Illinois citizens complaining about high gas prices in the wake of Hurricane Katrina. In response to those calls, Madigan sent teams of Attorney General investigators to more than 70 stations in different cities across Illinois to gather detailed retail gasoline price information.
After analyzing complaints from consumers and retail price data, Madigan requested and obtained wholesale cost information from gasoline station owners. The office analyzed the information to determine how much retailers charged for the gasoline compared to the price paid for it. Of the more the more than 50 stations scrutinized, 18 stations showed significantly higher post-Katrina price increases as compared to pre-hurricane prices.
The investigation is ongoing as to whether suppliers charged unjustified prices.
Additionally, on September 2, Madigan issued Emergency Price Gouging Rules --effective immediately -- to help prevent price gouging by petroleum-related businesses including suppliers, wholesalers, distributors and retailers of gasoline.
The emergency rules, which have the force and effect of law, were issued under the Attorney General's power to enforce the state's consumer protection laws. The rules provide that during any market emergency, it shall be an unfair or deceptive act for any petroleum-related business to sell or offer to sell any petroleum product for an amount that represents an unconscionably high price.
Under these rules, a price is unconscionably high if the amount represents a gross disparity between the price of the petroleum product and either the price charged before the emergency or prices readily obtainable by other buyers in the same area and the disparity in price is not attributable to increased prices charged by the businesses' suppliers or increased costs due to the market disruption.
New York Legislation
"Spikes in prices for gasoline and home heating fuel following last years hurricanes caused public outrage and tested the limits of the very laws enacted to protect the public from price gouging," Spitzer said. "Abuse of the free market system by those who seek to exploit natural disasters and tragedies cannot be tolerated."
Specifically, the bill provides that increases in prices or mark-ups of more than 25 percent following the onset of an abnormal market disruption trigger a presumption of price gouging. Currently, the law requires the Attorney Generals office to establish a "gross disparity" in prices charged before and after the market disruption.
"The establishment of a clear threshold for price gouging violations removes the uncertainty that merchants face when prices are changed after a market disruption," Spitzer said. "Moreover, it will make it easier for consumers and courts to identify instances of price gouging and hold violators liable for their conduct."
To deter future price gouging violations, the bill allows the courts to levy a penalty of $500 per violation, plus three times the total profits for such violation. Currently, the maximum penalty a court can impose is a total of $10,000, regardless of the profits that the party realized or the number of consumers it injured.
Also, the current price gouging law applies to all sellers in the chain of distribution, when the product sold was located in New York state prior to the sale. The proposed legislation makes clear that all such sellers are covered, even when the sale occurred outside the state.
The price gouging law, last amended in 1998, was established to prevent any party within the chain of distribution of any vital consumer goods from taking unfair advantage of consumers during market disruptions. It has been successfully enforced in the wake of several types of emergencies, including the sale of generators after a hurricane and an ice storm, home repairs following violent wind and snow storms, and hotel prices after the terrorist attacks on September 11th.
Spitzers office commenced investigations into allegations of price gouging at gas stations throughout the state immediately following last summers hurricanes. The investigations resulted in settlements with 15 gas station operators paying a total of $63,500 in penalties. Other retailers, distributors and wholesalers remain under investigation.
