Top 10 Legal Developments Consumer Products Companies Should Watch in 2026

Artificial intelligence (AI) continues to transform how consumers shop and interact with products — from AI-powered shopping assistants and dynamic pricing algorithms to connected toys that hold conversations with children — bringing novel liability questions and heightened regulatory scrutiny. At the same time, state legislatures remain active on multiple fronts, advancing laws governing AI development, environmental labeling, gift card redemptions, and product origin claims, even as the federal government signals a more assertive posture toward state regulation. Enforcement activity shows no signs of slowing: The US Consumer Product Safety Commission (CPSC) is pursuing aggressive action against importers and manufacturers, Proposition 65 plaintiffs continue to target emerging chemicals, and class action attorneys are challenging advertising claims with renewed vigor. Meanwhile, the proliferation of autonomous vehicles on American roads is forcing courts and regulators to confront fundamental questions about liability in a world where algorithms, not humans, are behind the wheel. This alert examines 10 key legal developments that consumer products companies should monitor closely in the year ahead.

1. AI Shopping Assistants Attract Companies and Consumers but Carry Special Risks 

AI shopping assistants are being widely adopted across industries. Technology and retail companies are embedding AI shopping tools into their e-commerce platforms, and other AI companies are releasing tools to help consumers more efficiently browse across multiple e-commerce platforms. Companies that employ their own AI shopping assistants should continue focusing on legal compliance and mitigating potential liability, especially in the context of warranty claims. For example, AI assistants could inadvertently make false representations about a product’s abilities or fitness for the consumer’s particular purpose. These risks can be mitigated by software programming, but AI software is still unpredictable. Companies would be wise to include disclaimers regarding any product representations made by the AI shopping assistant. Terms and conditions may also be used to limit liability under certain circumstances.

2. States Advance AI Regulation Amid Potential Trump Administration Pushback

Federal dynamics have injected more uncertainty into state efforts to regulate AI development and implementation. Building off an earlier attempt to place a moratorium on state regulatory efforts, US Congress may again seek to attach a broad preemption in upcoming federal spending bills. In response, a bipartisan coalition of state attorneys general urged congressional leaders to give “states leeway to formulate prudent health and safety regulations as this country’s laboratories of democracy.” Whether Congress acts or not, the Trump Administration has already signaled a more hostile approach to states’ AI regulation. In December, the president issued an executive order which, in part, created an AI Litigation Task Force to pursue lawsuits against state AI laws the Task Force deems “unconstitutional or unduly burdensome.” In 2025, 38 states enacted legislation that regulates AI in some capacity. For now, companies should pay close attention to state-level requirements as many of those go into effect in 2026.

3. Dynamic Pricing Draws Increasing Regulatory Pressure 

Adjusting prices based on consumer demand and market conditions is not a new phenomenon, especially in the travel and hospitality industries. But “dynamic pricing” may become more prevalent in 2026 and span more diverse industries. “Dynamic pricing” is the ability of a company to quickly adjust prices — either up or down — based on various circumstances. Surge pricing, which is related but different, occurs when demand for a product or service far exceeds supply and companies raise prices in response. In the past, lawmakers seemed more focused on regulating the latter, especially if it can be considered price gouging. In 2025, however, there were at least 51 proposed bills across 24 states aimed at regulating dynamic pricing, algorithmic pricing, or surveillance pricing. Federal prosecutors have also taken notice and used antitrust law to target certain companies’ algorithmic pricing. Companies seeking to use a dynamic pricing model should closely vet how a contractor develops their AI model, be cautious of any algorithms targeted at specific industries or that use non-public information, and closely monitor deployment to avoid price gouging claims. 

4. Proposition 65

Prop 65 enforcement targeting thermal receipt paper has increased significantly in recent months, affecting California retailers across multiple sectors, and we expect the same activity to continue into 2026.

Under Prop 65, California’s consumer right-to-know law, businesses that manufacture or sell products in the state must provide warnings when those products contain chemicals identified as causing cancer or reproductive harm. In late December 2024, the Prop 65 warning requirement for bisphenol S (BPS) went into effect. Since then, plaintiffs’ attorneys have issued hundreds of Notices of Violation to clothing stores, restaurants, coffee shops, supermarkets, and other retail establishments using thermal receipt paper containing BPS. These notices carry exposure for civil penalties and attorneys’ fees, and unresolved matters can escalate into costly litigation after the 60-day cure window expires.

Consumer product companies and retailers can take several steps to mitigate risk. First, companies should confirm their receipt paper is free of both BPS and bisphenol A (BPA), transitioning to compliant alternatives if necessary. Second, companies should document the transition to compliant paper by preserving internal communications directing stores to make the change. Third, companies should obtain written certification from receipt paper suppliers confirming the receipt paper is BPS- and BPA-free.

Companies that proactively address emerging Prop 65 enforcement trends are best positioned to manage exposure and avoid costly litigation.

ArentFox Schiff tracks this and other Prop 65 enforcement developments in its monthly video series, Prop 65 Unboxed and in its monthly newsletter, Prop 65 Roundup.

5. Federal Courts Let ‘Made in USA’ Claims Proceed Despite Domestic Sourcing Limits

Two recent federal court decisions underscore the risks companies face when making “Made in USA” claims without a thorough understanding of their supply chains. In December 2025, courts in both the Northern District of Illinois (Lauer v. John Paul Mitchell Systems, No. 1:25-cv-02438 (N.D. Ill.)) and the Southern District of California (Corona v. It’s a New 10, LLC, No. 3:25-cv-00377 (S.D. Cal.)) denied motions to dismiss class action lawsuits challenging “Made in USA” labeling on haircare products. In both cases, the plaintiffs alleged that key ingredients — tea tree oil and jojoba in Lauer, and silk-derived components in Corona — were sourced from outside the United States. The courts found that allegations of a price premium attributable to the origin claims were sufficient to establish economic injury and allowed the cases to proceed.

These rulings send a clear message: The fact that certain ingredients may not be readily available or able to be sourced domestically does not insulate a company from liability for unqualified “Made in USA” claims. Under the Federal Trade Commission’s (FTC) Made in USA Labeling Rule and analogous state consumer protection statutes, products bearing such claims must contain “all or virtually all” US components. Companies cannot simply assume that industry-standard foreign sourcing for specialty ingredients provides a safe harbor. Rather, brands must conduct rigorous supply chain audits, understand the origin of all inputs, including raw materials and intermediate ingredients, and use appropriately qualified claims (e.g., “Assembled in USA with Foreign and Domestic Components”) where full domestic sourcing is not achievable. Failure to do so invites both regulatory enforcement and costly private litigation.

6. California’s New Gift Card Cash-Out Rule: Lessons From Chipotle’s $246K Settlement

Gift card cash redemption laws — also known as “cash-out” laws — require retailers to refund the remaining balance on a gift card in cash when that balance falls below a specified dollar threshold. These consumer protection statutes are designed to prevent small, unusable balances from becoming “breakage” that benefits the retailer rather than the consumer. Several states have enacted such laws, each with varying thresholds and requirements.

California Senate Bill 22 raises the state’s gift card cash-out threshold from $10 to $15, effective April 1. Under California Civil Code Section 1749.5(b)(2), retailers must provide cash refunds for gift cards with remaining balances below the statutory threshold upon the holder’s request — and with this change, California will have the highest cash-out threshold in the nation. California already has some of the most stringent gift card requirements, prohibiting expiration dates and service fees on most gift cards. Companies operating in multiple states face a patchwork of similar but varying requirements: Approximately 10 states have cash-out laws, with thresholds typically ranging from $1 to $10. States with cash-out laws include Colorado, Maine, Montana, New Jersey, Oregon, Washington (balances under $5), and Massachusetts (after 90% of the balance is redeemed). 

The October 2025 settlement between Chipotle Mexican Grill and California district attorneys serves as a cautionary tale for businesses preparing to comply with the new $15 threshold. Chipotle agreed to pay $246,000 — including $145,467 in civil penalties, $88,533 in investigative costs, and $12,000 in restitution — to settle allegations that it failed to provide required cash refunds for gift card balances under the then-applicable $10 threshold. The enforcement action involved multiple county district attorneys working collaboratively and resulted in injunctive relief requiring Chipotle to establish a dedicated online portal for cash-out requests and update its gift card disclosures to inform consumers of their redemption rights. With the threshold now increasing to $15, the volume of gift cards eligible for cash redemption will expand significantly, making robust compliance systems even more critical. Common compliance pitfalls that companies face include outdated written policies still referencing old thresholds, inconsistent or inadequate employee training (particularly for front-line staff), point-of-sale systems that lack options for cash refunds, unclear cash-out mechanisms for electronic gift card programs, and terms and conditions that conflict with legal requirements. Even well-intentioned gift card programs can create legal exposure if consumers’ rights to cash redemption are not clearly communicated and easily accessible. Companies should also be aware that regulatory enforcement is not the only risk. Plaintiffs’ attorneys have pursued class action claims based on alleged violations of gift card laws in both state and federal courts, meaning noncompliance invites scrutiny from regulators and private litigants alike. Companies should act now to update policies, retrain staff, and modify point-of-sale systems before the April 1 effective date to avoid the type of enforcement action Chipotle faced.

7. Is Your Toy Talking Back? AI in Toys Draws Lawmaker and Industry Scrutiny

AI-powered toys have come under significant scrutiny following a January Common Sense Media report that found 27% of AI toy responses were inappropriate, including references to drugs, self-harm, and risky behavior. The report evaluated popular AI toys such as Grem, Bondu, and Miko 3, finding instances where toys suggested dangerous activities like jumping from roofs or provided information about accessing unsafe household chemicals. Child development experts have also raised concerns that these toys may interfere with children’s ability to form healthy human relationships, as the AI companions are designed to create emotional attachments without the complexity of real human interactions. Privacy issues are another major concern, as some AI toys continuously collect voice recordings and behavioral data from children’s bedrooms.

In response, federal and state regulators have taken action. The FTC settled with robot toy maker Apitor Technology over Children’s Online Privacy Protection Act violations related to third-party geolocation data collection from children, resulting in a $500,000 penalty. California has been at the forefront of legislative efforts, with Senator Steve Padilla introducing CA Senate Bill 867 to impose a four-year moratorium on AI companion chatbots for children under 18, while CA Senate Bill 300 (which passed the California Senate unanimously) would prevent chatbots from exposing children to sexually explicit material. The US Public Interest Research Group and 107 childhood development experts have urged AI toymakers to commit to greater transparency, and a national survey found that nearly three in four parents expressed concern that AI toys might say something inappropriate, untrue, or unsafe to their children.

8. California’s SB 343 Truth in Labeling Law

California’s SB 343 — the “Truth in Labeling” or “Truth in Recycling” law — bars companies from displaying the chasing arrows symbol or any recyclability indicator on products and packaging sold in California unless the packaging meets specific recyclability criteria.

The law takes effect for products manufactured after October 4, 2026, following CalRecycle’s publication of its Final Findings Report on April 4, 2025. Any packaging that displays the chasing arrows, a recyclability statement, or a direction to recycle makes a deceptive claim under the statute unless the material routinely becomes feedstock for new products.

To qualify for recyclability labeling, packaging must clear three hurdles: 

1. Recycling programs serving at least 60% of California’s population must collect the material. 
2. Facilities serving at least 60% of those programs must sort and process the material into feedstock. 
3. Manufacturers must actually use the material to produce new products or packaging.

CalRecycle’s data show that most uncoated paper-based materials clear these thresholds, while plastic films, multi-material laminates, and complex composites generally fail. For consumer product companies, this means ubiquitous recyclability symbols on flexible packaging, pouches, and multi-layer containers will likely need to come off.

SB 343 offers no exemptions based on company size or product category and creates no centralized enforcement body or registration requirement. Instead, the law follows the Proposition 65 model: The California Attorney General, district attorneys, city attorneys, and private parties may all bring enforcement actions against companies whose recyclability claims fail to meet the statutory criteria. Such lawsuits may also be filed as potential class actions.

Given this enforcement structure, companies selling products or packaging in California should audit all recyclability claims now, remove non-compliant symbols and language well before the October deadline, and retain documentation substantiating any claims they keep. 

9. Driverless Driving Shifts Liability for Auto Accidents From Human to Machine

Fully autonomous vehicles (i.e., those that can operate on public roads without a human driver, SAE level 4), now mostly in the form of ride-hailing services, are becoming ubiquitous in urban areas across the nation as manufacturers and operators look to expand their services and gain market share. With that growth comes the increased probability that “driverless” cars carrying human passengers will be involved in more on-road collisions and ordinary traffic violations. Who shoulders the liability for these incidents when there is no human driver behind the wheel? How will the law adapt to a world where responsibility for a car crash may lie more in the strength and reliability of computer code and algorithms than in human conduct?

States are developing a patchwork of approaches to the testing and deployment of autonomous vehicles on public roads, but the United States still lacks a uniform liability framework for the use of this technology. As these vehicles become a regular part of millions of Americans daily lives, courts will be asked to resolve liability for on-road incidents in which responsibility cannot lie with a human driver. Plaintiffs’ lawyers are beginning to argue that autonomous vehicles are defective when they do not operate as a reasonable consumer would expect them to. At least one consumer vehicle manufacturer has already been found partially liable after its vehicle, operating using a partially automated driving system (SAE level 2, supervised automation), was involved in an accident.

The National Highway Traffic Safety Administration also has broad enforcement authority under its originating statute to conduct investigations, gather information to determine whether a vehicle is safe, and enforce its regulations.

Manufacturers of autonomous vehicles would be wise to shore up their safety programs and insurance, as liability will increase with prevalence of these vehicles on the road. The potential for high-value single-plaintiff litigation, as well as class actions, is real.

10. CPSC Continues Robust Enforcement

In 2025, the CPSC continued its trend of aggressive enforcement. We saw an uptick in children’s clothing inspections at the border, random sampling and testing of imported products across industries, and first-ever criminal sentencings with jail time for executives found to have purposely avoided CPSC safety reporting. 

Late last year, the US Department of Justice (DOJ) also announced a reorganization aimed at more efficient CPSA enforcement. The former Consumer Protection Branch was dissolved and its personnel assigned to other divisions. In its place, the DOJ created the Enforcement & Affirmative Litigation Branch (EALB) with a division devoted to pursuing litigation under the CPSA, as well as other health-related enforcement objectives. One of the EALB’s first moves was to file a “high-impact” civil penalty lawsuit against Black & Decker for failing to “immediately” report a substantial product hazard. 

Looking ahead to 2026, companies should be wary of the CPSC’s vow to continue aggressive enforcement activity, particularly those importing from China. In July 2026, the electronic filing of certificates of compliance via E-Verify will become mandatory and present significant logistical hurdles to companies that are unprepared for the transition.