Flood-ravaged Colorado is one of only 15 states where price-gouging during an emergency is not illegal — it’s merely capitalism.
To some it might be socially reprehensible and ethically wrong, but legally there’s nothing to prevent a businessperson from upping the cost of necessary post-disaster supplies to meet the pressing needs of those affected by the event.
“The price of a product or service alone is not a scam if it’s fully disclosed,” Colorado Assistant Attorney General Jan Zavislan said. “If the consumer has the information and has the right to shop around, but the sources in an emergency aren’t there, it might be an outrage to people, but there’s no specific law on the price itself.”
As communities begin the process of cleaning up from the floods and taking an inventory of insurance coverage — if any — more immediate needs of food, water, fuel and shelter can be met with surprise over their cost.
As long as a merchant is clear on the price — even if it’s 10 times the rate it had been before the disaster — then there’s no law broken.
“We’re certainly in the minority,” Zavislan said, acknowledging that an effort to pass legislation against price-gouging during emergencies died in 2006. “A bunch of states, mostly southern and upper Eastern Seaboard, have wide price-gouging statutes.”
Many came as a result of the terrorist attacks of 9/11, when gasoline prices soared nationally without explanation or cause, and Hurricane Katrina that swept the South in 2005.
Thirty-five states have limited price increases that businesses are allowed to place on items deemed necessary during a disaster. Those limits, typically a percentage amount, are based on a product’s cost at a certain period before the disaster occurred.
But Gov. Bill Owens vetoed HB-1251 in June 2006, a measure that would have banned price-gouging for life-sustaining items such as water and gas during Colorado emergencies. Violators would have been fined a maximum of $10,000 per day.
Owens at the time said the measure “violates the fundamental principles of our market-based economy.”
The bill’s introduction understood the problem: “It is an unfortunate truth that some will try to take advantage of others in emergency situations by price gouging for consumer and other commercial goods or services.”
“Where it crosses into gouging is when you are able to increase the supply but strictly deal with the demand by raising the price,” said Mac Clouse, a professor of finance at the Daniels College of Business at the University of Denver.
“There’s no economic justification for the increase in price when the supply can come back,” he said. “It’s a huge issue in the finance and business world, of a company’s social responsibility, of being a good corporate citizen.”
The critical difference is a consumer’s attitude after the disaster is over and life begins to return to normal.
“Some businesses might be socially conscious, which can come at the cost of profit loss,” Clouse said. “But then there’s the future goodwill, where local consumers remember you weren’t the business that doubled the price of water.”
Colorado does have a law that prohibits price-gouging on a specific item during a time of emergency: necessary drugs. The price cannot exceed 10 percent of the cost charged 30 days prior to the disaster declaration.