When Hurricane Matthew barreled down on parts of Haiti, Cuba and the Dominican Republic, and then veered toward several southeastern states, those who could fled while others waited it out in emergency shelters or with families. But for many, hotels are the only option. With natural disasters like hurricanes, floods or tornadoes seeming to happen with frighteningly regularity, an unfortunate byproduct has been increasing enforcement of state price gouging laws against hotels.
So-called “price gouging” is where a business providing essential consumer goods or services takes advantage of abnormal market conditions caused be events such as natural disasters, armed conflicts or other crises, by raising prices to excessive levels.
To date, 34 U.S. states have enacted anti-price gouging legislation. Typically, these statutes make it illegal for a business to raise prices or rates for essential goods or services during an emergency. In most cases the laws impose specific price limitations for essential items or services where a state of emergency has been declared, and those limitations usually remain in effect for a period of time following the declaration of a state of emergency.
A common approach of anti-price gouging laws is to preclude businesses from raising prices by more than 10 percent compared to their prices immediately before the declaration of a state of emergency, and that limitation would remain in effect for 30 days from the declaration of the state of emergency. Failure to comply with the limitations could expose the businesses to civil and/or criminal penalties and possibly private claims by affected consumers.
Lodging is considered an essential consumer service under anti-price gouging laws. This year, state attorneys general and district attorneys began to aggressively target hotels for investigation when states of emergency are declared.
The allegation is that room rates charged during and soon after a disaster or crisis exceed prior rooms rates by an exorbitant amount and the implication is that the hotels are taking advantage of abnormal market conditions resulting from a disaster or other emergency in order to profit from it. Hotels are being required to disclose comparative room rate data to investigators seeking to prove price gouging. The issue is complicated by the fact that many hotels set rates on a semi-automated basis using systems that track demand and “comp set” rates published by competing hotels, and in those circumstances room rates may fluctuate beyond the imposed statutory limits without hotel personnel controlling the fluctuations.
Responding to investigations can be time-consuming and expensive, and in some cases the explanations for room rate movement is complex and difficult to explain persuasively to investigating agencies. Hotels under investigation for price gouging are at risk for significant penalties.
Hotels should be aware of whether the state in which they are located has an anti-price gouging law, what things trigger rate limitations, and the nature, extent and timing of those limitations. In addition, when a natural disaster, civil unrest or other crisis occurs, hotels must consciously exercise control over the movement of their room rates so that those rates do not exceed legal limitations.
About Sandy Brian Garfinkel
Garfinkel is a business litigator who serves as the chair of the firm’s Data Security & Privacy Group. Garfinkel also maintains a busy and diverse business litigation practice with a particular emphasis in the hospitality industry. As part of his work in the hospitality world he regularly assists hotel management and ownership companies in responding to regulatory investigations of many varieties.