The price gouging law in New Jersey is clear.
Merchants may not raise prices by more than 10 percent during a declared state of emergency, or for 30 days thereafter. If a merchant’s expenses have risen because of the emergency, they can only raise prices 10 percent more than their net cost.
Consumer Affairs has received an unprecedented number of complaints — more than 2,000 — in the wake of Sandy. And on Friday, it announced eight price gouging lawsuits against gas stations and a hotel.
But not everyone supports the state’s price gouging law, which authorities say protects consumers in a time of great need.
Critics say the rule is unfair to businesses, and it’s contrary to market forces and the law of supply and demand. They also argue that higher prices mean consumers won’t buy excessively, therefore leaving more for others, and that market forces won’t allow those higher prices to last.
He said while prices would be higher in the beginning, an influx of supplies would quickly bring costs down as supply is greater than demand. Taylor likens the price gouging law and not allowing business to set market rates to mandating that companies offer goods and services for free.
Supporters of the law say it’s plain wrong for businesses to overcharge consumers in times of hardship.
“The idea that illegal price gouging is somehow good for those who are suffering during a time of crisis is patently absurd,” said attorney general Jeffrey Chiesa.
He said price gouging does not lessen the demand for gasoline, shelter and other items people need when they have been displaced from their homes or are without heat and electricity.
“Such arguments may make sense to theoretical economists, but they are meaningless to New Jerseyans who were without basic necessities as a result of Hurricane Sandy,” Chiesa said. “During the days after the storm, many of these families had low and dwindling supplies of cash. They could not afford to be illegally gouged by merchants supplying the items they needed most.”
And even if consumers are willing to pay higher prices, that doesn’t make it right, supporters of the law said.
“There are people who say, ‘I don’t care what the price is. I need what I need,'”…” said Adam Levin a former director of the state’s Division of Consumer Affairs. “The business has the right to cover extra expenses, but there are times when the rules of commerce don’t apply and the rules of humanity take over.”
There are times, though, when the gouging statute’s application is unclear.
When Sandy knocked out power at Michael and Elizabeth Yamashita’s Chester home, the couple needed service to get their generator up and running. They called Innovative Electric, which had serviced the generator before.
Elizabeth Yamashita left a message at the store at 10 a.m. on Oct. 30, and while she said no one returned the call, a technician arrived two hours later.
In 20 minutes the technician determined a new part would have to be ordered.
They were given a bill for more than $500, which reflected what the tech called “emergency pricing”: $150 for the service call, plus $320 for labor, which accounted for a two-hour minimum.
“My husband notified the technician that it was against the law to profiteer during an emergency and accepted the bill under protest,” Elizabeth Yamashita said.
Three days later, two technicians installed the part, and the fix worked. The family was given a second bill: $160 for labor and $78 for the part.
“He demanded immediate payment,” Elizabeth Yamashita said. “My husband told him that he would not pay until the issue of the first bill had been resolved.”
The techs left and returned with a boss, the couple said, and they demanded payment. The couple refused to pay the “emergency” charges, they said, calling it “extortion.”
“The Innovative representatives said that because we had not paid, they were removing the part and turning off the generator,” she said. “(They) left us with a non-functioning generator.”
The couple said they were victims of price gouging, but Innovative Electric doesn’t see it that way.
“We have emergency service call rates that have been the same before the storm and after the storm,” said owner Shannon Leckie, who was adamant that there was no price gouging and noted the company waived a $50 service fee for its second visit to the home.
Under normal conditions, emergency service rates apply nights and weekends, she said. That Tuesday was the only post-Sandy day that the company charged the higher rates.
“Our technicians understandably did not want to work with the dangerous road conditions. We offered them double time,” Leckie said. “On Wednesday, we made a business decision to absorb all overtime, double time and travel time without passing it on to our customers.”
Leckie also said she personally spoke to the Yamashitas and got a verbal okay for the “emergency pricing” before sending the technician — something the couple vehemently disputes.
As for why the technician removed the part, Leckie said the company wanted to avoid a prolonged battle.
“Fighting for monies after the service has been performed is not a viable option as the legal costs and time to pursue this debt is prohibitive and we were already at a loss for the time and the part,” she said, noting the couple had been late in paying for a previous service call.
PRICE GOUGING OR NOT?
Until Consumer Affairs investigates an allegation of gouging and reviews business invoices and receipts — opening up a company’s books — it’s often difficult to determine who is right or wrong in a price gouging allegation.
The agency said it couldn’t comment on a company change to “emergency pricing,” but it confirmed that it received one complaint about the company since Sandy.
Former Consumer Affairs chief Levin said he found it interesting that the company only charged the emergency prices on Tuesday, while conditions and power outages remained a big problem throughout the week.
“I think either they got sufficient pushback during Tuesday so they realized they were digging a deeper hole, or on Wednesday they got a conscience,” he said. “Then, as a businessperson, I would have called the consumer and said we’re sending our guys back.”
Business ethics expert Ann Buchholtz said if the company had presented an estimate in writing, the dispute could have been avoided. Buchholtz, a professor of leadership and ethics at Rutgers Business School, said a written estimate would have provided transparency. It would have been clear that the customer was informed and agreed on the price, and there would be no “he-said, she-said.”
“There’s an overlap between the law and ethics, and some things that are legal are not ethical, and things are unethical are sometimes legal,” she said. “It’s important to look at what’s right, and leaving a family without electricity isn’t right. It’s wrong.”
Buchholtz said the customer has a right to information, and the business also has the right to pass on increased costs. Still, she said, even if Consumer Affairs decides this is not a price gouging case, taking away the installed part is “invasive.”
It’s more than “invasive,” consumer law attorney Ronald LeVine said. He said once the part was installed, it became the property of the owner, and removal of the part is a “clear Consumer Fraud Act violation,” he said.
“To disable the generator in a time of emergency? To abandon someone in the cold and lacking utilities? That’s a pretty nice lawsuit. I wouldn’t want to be the defendant,” LeVine said. “(The company) may have more empathy than a thief who broke in with a bandana over his head, but it’s not a lot different.”