Penal Code 396 | Price Gouging

Penal Code 396 | Price Gouging

Price gouging is an unethical practice that involves raising prices on essential goods and services to unfair levels, often during times of emergency or disaster. This takes advantage of people’s urgent need for things like food, water, gasoline, and medical supplies. While price gouging may not sound illegal, in California it can actually be prosecuted under Penal Code 396.

What is Penal Code 396?

Penal Code 396 is a California law that prohibits price gouging during states of emergency. It makes it illegal to increase prices more than 10% on certain necessary items and services when a government declared emergency is in effect. This includes things like:

• Food and drink
• Emergency and medical supplies
• Gasoline
• Repair and reconstruction services
• Housing
• Transportation, freight, and storage services

So if there is an earthquake, flood, fire, riot, storm, or other disaster in California, sellers cannot jack up prices on those basic necessities to unfair levels. The law applies to retailers as well as contractors, businesses, and individuals. It covers in-person sales and online transactions.

Penal Code 396 makes price gouging a misdemeanor offense. If convicted, penalties can include up to a $10,000 fine and/or 1 year in county jail. So it is a criminal law meant to crack down on predatory pricing tactics against vulnerable consumers.

When Does Penal Code 396 Apply?

Penal Code 396 only comes into effect when a state of emergency has been declared by the President of the United States, Governor of California, or local government entity. Common emergency situations include:

• Natural disasters – Earthquakes, wildfires, floods, severe storms
• Power outages
• Civil unrest – Riots, protests
• Public health crises – Pandemics, contamination
• Terrorist attacks

The emergency declaration will specify the geographic areas covered and duration time period. Penal Code 396 prohibits price gouging during this active emergency period. Once the declaration has been lifted, the price gouging law no longer applies.

Examples of Price Gouging

Here are some examples of unfair price increases that could violate Penal Code 396 following an emergency declaration in California:

• A grocery store doubles the price on all bottled water – $3.99 to $7.99
• A gas station owner raises the cost of fuel by 15% per gallon
• A hotel triples its room rates for evacuees seeking shelter
• A contractor accepting repairs jobs charges 50% more than the regular rate
• An online retailer inflates prices 30% on emergency kits, batteries, and flashlights
• A pharmacy increases the price of face masks by 10% during a pandemic

Even moderate price hikes around 10-15% could be considered gouging under the law if not justified. The courts look at whether the amount charged grossly exceeds the price prior to the emergency, as well as pricing by competitors.

Defenses Against Price Gouging

There are some defenses that sellers can raise if accused of price gouging under Penal Code 396 in California:

• No emergency declaration – The law only applies during a declared state of emergency in the area.
• No covered goods or services – The price increase was not on food, housing, gas, etc.
• 10% threshold – The price hike was under 10% so not considered excessive.
• Reasonable price increase – The higher price was justified by increased costs like supplies, labor, storage, or transportation.
• No intent – The seller made a mistake or had no intent to unlawfully price gouge.

However, the burden is generally on the seller to prove the price increase was warranted and not meant to unfairly capitalize on emergency conditions. They will need good documentation showing their extra costs.

Penalties for Price Gouging

If a seller is charged and convicted of price gouging under California Penal Code 396, they face:

• Up to a $10,000 fine per violation
• Up to 1 year in county jail
• Both fine and imprisonment

Businesses can be charged for every unlawfully priced item or service. Individuals involved in ownership or management may also be named in the criminal complaint. The penalties get harsher for repeat violations.

Reporting Price Gouging

If you suspect price gouging during an emergency in California, report it immediately to authorities:

• Contact your local police department or county sheriff’s office
• File a complaint with the California Attorney General’s Office
• Report it to the California Department of Justice
• Notify the California Office of Emergency Services

Provide details on the seller, items purchased, prices charged, receipts, and any other evidence. This will spur an investigation into the unlawful pricing.

Pros of Penal Code 396

There are some pros or advantages to having an anti-price gouging law like Penal Code 396 in California:

• Protects vulnerable consumers from predatory pricing tactics
• Maintains reasonable prices on essential goods and services
• Discourages sellers from unfairly capitalizing on disasters
• Promotes equity and accessibility for all economic levels
• Prevents desperation and panic buying in emergencies
• Upholds ethics and social responsibility among businesses

The law aims to ensure necessities remain affordable when people urgently need them most.

Cons of Penal Code 396

There are also some cons or disadvantages to the anti-price gouging law:

• Can be challenging for sellers to track emergency declarations across multiple jurisdictions
• May discourage sellers from conducting business during disasters
• Does not consider increased seller costs for transportation, labor, etc.
• Reduces incentives for sellers to quickly resupply inventory
• Hard for law enforcement and prosecutors to monitor all transactions
• Does not address non-emergency supply and demand pricing issues

The ban on raising prices could actually lead to shortages if sellers have no incentive to restock inventory quickly. Some economists argue price caps can distort normal market forces.

Price Gouging vs. Supply and Demand

While price gouging may seem similar to supply and demand, there are some key differences:

• Price gouging – Unfair price increases meant to capitalize on emergencies and captive consumers.
• Supply and demand – Prices rise naturally from consumer demand outpacing supply.

Supply and demand pricing is generally legal. But substantially raising prices during disasters is considered unethical profiteering. Situations of strained supply due to hoarding and panic buying are closer to price gouging.

Price Gouging vs. Surge Pricing

Price gouging also differs from surge pricing:

• Price gouging – Price hikes meant to exploit emergency needs.
• Surge pricing – Price increases driven by increased demand and limited supply.

Uber and airlines use surge pricing algorithms to raise fares when demand spikes. This is generally legal based on supply and demand. But critics argue surge pricing can sometimes cross over into exploitation of consumers.

Ethics of Price Gouging

Price gouging raises a number of ethical concerns:

• Fairness – Is it fair to excessively raise prices when people urgently need goods and services?
• Transparency – Are price increases clearly communicated or hidden from consumers?
• Motives – Are profit motives balanced against doing good and preventing harm?
• Vulnerable populations – Does it disparately impact lower income and disadvantaged groups?
• Social responsibility – Do sellers have an ethical duty to the community during crises?

Ultimately there are good faith arguments on both sides. Some say price controls are paternalistic and distort free markets. Others argue unfettered greed should not outweigh moral obligations to society.

Price Gouging Predictions

Some economists predict price gouging regulations will face challenges in the future:

• More frequent natural disasters due to climate change
• Ongoing power grid and infrastructure vulnerabilities
• Growing income inequality and affordability concerns
• Rising e-commerce and app-based transactions
• Increasingly complex global supply chains

With more disasters and online sellers, monitoring all transactions will get harder. But consumer expectations for corporate ethics and fair pricing are also rising. There are arguments for both strengthening and reducing price gouging rules.

Conclusion

Price gouging remains a complex issue with reasonable perspectives on both sides. California Penal Code 396 aims to balance free markets with consumer protections during emergencies. But the law has limitations in scope, penalties, and enforceability. Looking ahead, price gouging regulations will likely continue evolving to reflect changing technologies, business models, and ethical expectations.

References

California Penal Code 396

California Office of the Attorney General – Price Gouging

California Price Gouging Laws – FindLaw