On December 19, 2023, the US Federal Trade Commission filed a complaint and proposed order against Rite Aid Corporation in the US District Court for the Eastern District of Pennsylvania (Case No. 2:23-cv-5023), settling charges that the pharmacy chain’s use of AI facial recognition was an unfair practice under Section 5 of the FTC Act. The settlement barred Rite Aid from using facial recognition technology for security or surveillance purposes for five years - one of the first times a US regulator imposed an outright ban on a specific AI use.
According to the FTC’s complaint, “from at least approximately October 2012 until July 2020, Rite Aid has used facial recognition technology in hundreds of its retail pharmacy locations” to flag patrons it had deemed likely to shoplift. The system generated “match alerts” sent to employees. Acting on those alerts, employees took action against the flagged individuals - “subjecting them to increased surveillance; banning them from entering or making purchases,” “publicly and audibly accusing them of past criminal activity in front of friends, family, acquaintances, and strangers; detaining them or subjecting them to searches; and calling the police.” The complaint stated that “in numerous instances, the match alerts that led to these actions were false positives.”
The FTC alleged Rite Aid “failed to take reasonable measures to prevent harm to consumers,” including failing to test the technology’s accuracy and to enforce image-quality standards, and that the company “did not inform consumers that it was using the technology.” It said the failures “caused and were likely to cause substantial injury to consumers, and especially to Black, Asian, Latino, and women consumers.” The order also required Rite Aid to delete the photos and any algorithms or products derived from them.
Why business readers should care: the case set an early regulatory marker that deploying an AI system without testing its accuracy, controlling for biased error rates, or notifying the people it is used on can itself be an unlawful business practice. The disproportionate harm to people of color echoed findings such as gender-shades-error-rate-gap, and the five-year ban showed regulators were prepared to prohibit a use outright rather than merely require disclosure.