California’s Ban on Hidden Junk Fees In Effect, by Kartikey Pradhan, Esq.,7-24-2024

On July 1, California’s hidden fees statute targeting price transparency went into effect impacting a host of businesses including hotels. Senate Bill 478, which amends the California Consumer Legal Remedies Act, now makes it an unlawful business practice to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges other than certain government-imposed taxes or shipping costs.

The legislation is intended to specifically prohibit “drip pricing,” which involves advertising a price that is less than the actual price that a consumer will have to pay for a good or service. The law applies to the sale or lease of most goods and services that are for a consumer’s personal use. However, there are certain exceptions to SB 478’s all-in pricing requirements.

On June 29, Governor Gavin Newsom signed emergency legislation, SB 1524, which clarified that SB 478 “does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service, subject to certain exclusions and conditions.”

To be exempt from SB 478, a mandatory fee or charge must be “clearly and conspicuously displayed” with an explanation of its purpose on an advertisement, menu, or other display.  Further, it must have text that is “clear and conspicuous” as defined in subdivision (u) of Section 1791. The clear and conspicuous disclosure requirement must be met by July 1, 2025.

What Can Be Excluded?

For all other nonexempt businesses, SB 478 is already fully enforceable. An FAQ was released to provide further guidance to covered businesses (it has not been updated to reflect the exemptions under SB 1524).

According to the FAQ, to comply with SB 478, the listed or advertised price does not need to include taxes and/or fees that the government imposes on the transaction, such as sales tax. In addition, the listed or advertised price does not need to include reasonable shipping costs for physical goods.The law requires mandatory fees to be included in advertised prices. Fees that are contingent on certain later conduct by a consumer, such as a fee for returning rented equipment after the deadline to do so, or charges for smoking in a non-smoking hotel room, are not mandatory and do not need to be included in the advertised price, as per the guidance.

Applicable Businesses

The law applies to the sale or lease of most goods and services that are for a consumer’s personal use. For example, it applies to event tickets, short-term rentals, hotels, just to name a few prominent industries.The law does not apply to the purchase or lease of goods or services for commercial use, or to certain other specified transactions and industries that are already subject to other laws governing pricing.

Penalties

Failure to comply comes with costly ramifications. Consumers can bring claims against businesses that do not comply with the law potentially resulting in penalties of at least $1,000 per violation, plus restitution and attorney’s fees.

Looking Ahead

Given the new legislation, businesses should analyze all their fees to make sure their disclosures take into account the many nuances of the law. Author: Kaufman Dolowich Partner Kartikey Pradhan