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Price Gouging from Coronavirus Opportunists Poses Credit and Regulatory Risk

As the pandemic caused by the novel coronavirus spreads, opportunistic scammers have begun taking advantage of panicked consumers through price gouging on basic healthcare products, such as hand sanitizer, face masks, and toilet paper. Many online merchants are now offering these products at drastic markups, ranging from three small bottles of hand sanitizer for $60 to face masks for upwards of $10 each. More than just a consumer issue, prominent instances of price gouging have led to intense scrutiny of COVID-19-related products and services from regulators, and can have a negative impact on online marketplaces and payment service providers.

Emergency preparedness kits

Exorbitantly priced emergency preparedness kits marketed as COVID-19 kits

Price gouging can be considered a violation of state deceptive trade practices laws and regulations, which broadly prohibit business practices that mislead the public into purchasing a product or service. It can also cause significant consumer harm as individuals hoard essential supplies for resale. Penalties for price gouging in a state of emergency vary by state, but in many jurisdictions it is considered a criminal offense, punishable by imprisonment or substantial fines. Given the current shortages of relevant consumer goods, officials across the country are aggressively enforcing these laws (including Connecticut, Illinois, Oregon, and Texas). In the current state of emergency, price gouging related to COVID-19 poses significant regulatory and reputational risk to payment processors.

LegitScript has observed a surge of merchants offering pandemic-related products at exorbitant prices. Ranging from overpriced face masks to emergency preparedness kits, the crisis profiteers have something for everyone. For example, the merchant pictured below is offering packaged Coronavirus preparation kits at prices up to $6,696!

overpriced respirator and kit for sale

 A preparedness kit and respirator marketed for the outbreak both selling for thousands of dollars

As vigilant payment processors swiftly terminate these merchant accounts, many of the scammers then resort to transaction laundering to obfuscate the nature of their risky sales. LegitScript has already confirmed numerous cases of transaction laundering for products related to COVID-19, and we are actively tracking this trend as it increases. LegitScript leverages intelligence from previous offenders to proactively monitor for transaction laundering related to emerging threats such as the coronavirus outbreak, in addition to our monitoring of high-risk industries.

The FTC has recently warned consumers that fraudsters leveraging panic related to the outbreak may be involved in nondelivery scams, fake charities, phishing, and other activities to profit off the current crisis. The rapid proliferation of such scams poses significant credit risk, as chargebacks may flood in after a merchant fails to deliver goods or promises miracle cures to capitalize on consumers' fear. Additionally, legitimate merchants may simply be overwhelmed by the crisis and unable to manage their supply chains and logistics.

Have you seen a website or a seller on an e-commerce platform engaged in price gouging, scams, or other problematic behavior related to the coronavirus outbreak? Let us know by reporting the website.

 

David Khalaf is a writing, communications, and marketing professional with specialties in media, investigations, content strategy, and writing instruction. His 20 years of writing, media, and communications work have included two top-tier universities (USC and UCLA), print and digital magazines, consulting firms, and technology companies.

His current work involves content strategy and development at LegitScript, a company that helps the world's leading search engines, payment service providers, and internet platforms and marketplaces do business with legitimate, legally operating entities in more than 80 countries and 15 languages around the world. LegitScript specializes in risk and compliance for highly regulated industries including CBD/cannabis, online gambling, cryptocurrencies, drugs, financial trading, online adult, scams and fraud, and more.

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