New York City Targets AI Customer Service Chatbots with New Regulations

The administration of Mayor Zohran Mamdani has introduced a proposal aimed at increasing transparency and accountability for companies using AI-powered customer service chatbots. The new rule would require businesses to disclose the use of such automated systems and offer customers the option to speak to a human representative.

Key Requirements of the Proposed Rule

Under the proposed regulation, customer service automation systems must:

• Clearly inform users when they are interacting with an automated or AI-powered chatbot.
• Provide customers with a prompt option to connect with a human agent.
• Deliver assistance in a “reasonable and timely manner.”
• Avoid repeatedly routing consumers to irrelevant menus or providing incorrect responses.

City Officials Voice Concerns About AI Customer Service

Samuel Levine, Commissioner of the Department of Consumer and Worker Protection, explained that technology has sometimes allowed companies to “ignore customer complaints, stymie refunds, and avoid fixing building errors.” Levine added, “Our worry in New York City is that AI is only going to make this relationship worse. So… we’re going to try to fix this. We’re drawing a line to save people time and money, and ensure people can get actual customer service.”

Broader Context: Rising Skepticism and Legislative Trends

The move comes as national skepticism about artificial intelligence is growing and calls to regulate the industry are becoming more prevalent. At a recent Manhattan event, Mayor Mamdani echoed sentiment that the federal government is not adequately addressing AI regulation. His administration has already imposed an AI ban in the city’s public elementary and middle schools as of September.

According to the Future of Privacy Forum, legislators in 37 states have introduced over 120 bills tackling various aspects of chatbot regulation. While several states have passed laws mainly focused on AI disclosure requirements and child safety, few have specifically targeted automated customer service systems as New York City’s proposal does.

Implementation, Scope, and Penalties

A public hearing on the proposed rule is scheduled for November 19. The timing of the final rule’s implementation will depend on the volume of public comments received. After it goes into effect, there will be a transition period for companies to comply with the requirements.

The rule will apply to any company serving customers in New York City, regardless of their physical location. The regulation targets any customer service framework where “all or substantially all” communication occurs through technology rather than people, and is based on the city’s Consumer Protection Law.

Companies violating the rule would face penalties: $525 for a first violation, $1,050 for a second, and $3,500 for a third and subsequent violations.

New York City's Approach as a Potential Model

Commissioner Levine expressed hope that this regulatory approach would inspire similar efforts across the country. “We think every jurisdiction should do this,” he said. “We want this idea to spread.”

Source: gothamist.com.