The Federal Trade Commission has ordered Rite Aid to stop using artificial intelligence surveillance devices to curb shoplifting, saying the facial recognition technology disproportionately harms people of color. 

According to the agency, the system has incorrectly matched shoppers in predominantly Black and Asian localities to past shoplifters and troublemakers at a higher rate than shoppers in predominantly white areas. The FTC has therefore banned the company from using AI surveillance devices for five years.

“Rite Aid’s reckless use of facial surveillance systems left its customers facing humiliation and other harms, and its order violations put consumers’ sensitive information at risk,” the FTC’s director of the Bureau of Consumer Protection, Samuel Levine, said in a statement. “Today’s groundbreaking order makes clear that the Commission will be vigilant in protecting the public from unfair biometric surveillance and unfair data security practices.”

Rite Aid, which is already facing financial strain from settlements related to opioid lawsuits and has been suffering major financial losses from rampant shoplifting, used AI-powered surveillance to “capture images of all consumers as they entered or moved through the stores.” The footage of those identified as past shoplifters and other bad actors was stored in a database along with “accompanying information,” including names, birth dates, and details of past activity, according to the settlement. 

Once these potential miscreants were identified, employees would get alerts on their mobile phones. Employees then “followed consumers around its stores, searched them, ordered them to leave, called the police to confront or remove consumers, and publicly accused them, sometimes in front of friends or family, of shoplifting or other wrongdoing,” the FTC wrote in a press release. 

The agency added, “The company did not inform consumers that it was using the technology in its stores, and employees were discouraged from disclosing such information.” The Rite Aid stores equipped with the technology are among those in regions heavily affected by retail theft, including New York City, Philadelphia, Los Angeles, and Baltimore. 

The FTC said that mismatches from the system “disproportionately impacted people of color.”  

The problem arose, according to the agency, when the system put in place by Rite Aid incorrectly flagged shoppers who were then “erroneously accused by employees of wrongdoing because facial recognition technology falsely flagged the consumers as matching someone who had previously been identified as a shoplifter or other troublemaker.”

These errors, according to the FTC, were more frequent in “stores located in plurality-Black and Asian communities than in plurality-White communities.”

The mismatches, TechCrunch reported, might have been caused by the poor quality of images recorded on employee cellphones and store surveillance images that comprised the company database. A study by researchers at the Massachusetts Institute of Technology purported to show that darker-skinned participants were more likely to be misidentified by one popular AI image identifier, Rekognition. 

Some technology experts have attributed these problems to digital camera hardware, which is typically trained by manufacturers on light-skinned subjects. 

The news of the FTC’s settlement with Rite Aid comes as the retailer says its financial performance is being seriously affected by retail theft. The chain’s chief executive officer, Jeffrey Stein, told analysts during a July call that the company’s “shrinkage” for the quarter amounted to $9 million, forcing the chain to close stores in “high-shrink” areas.

During a September 2022 earnings call, the chief executive at the time, Heyward Donigan, stated that the company “experienced unexpected headwinds this quarter from front-end shrink, particularly in our New York urban stores,” related to a $5 million increase in retail theft. The term “shrink” refers to losses related to theft, fraud, or administrative errors. 

Most recently, the company announced plans to shutter more than 30 stores across the nation. 

Amid the uptick in retail shoplifting, experts have hailed biometric technology as being effective at identifying thieves when they enter stores. Yet after large tech companies stopped providing the technology to authorities in the aftermath of the George Floyd riots, one startup, Clearview AI, stepped in to help authorities identify perpetrators in nearly a million cases in 2023. 

In lieu of artificial intelligence, or perhaps in addition, retail stores have also been locking commonly stolen items behind plastic guards in recent years, much to the annoyance of customers. The practice of locking up these goods has also been labeled as racist by liberal activists such as a “Sex and the City” star, Cynthia Nixon, who criticized her local New York Walgreens for locking up essential items that thieves might need for sustenance. Retailers were also criticized for locking up products marketed toward Black consumers. As a result, retailers such as Walmart and Target unlocked some Black beauty products.

For its part, Rite Aid stated in a press release circulated shortly after the settlement was announced Tuesday that it “fundamentally” disagrees with the facial recognition allegations in the agency’s complaint. “The allegations relate to a facial recognition technology pilot program the Company deployed in a limited number of stores,” the company added.