In October 2023, California passed SB 478, an amendment to the Consumers Legal Remedies Act (CLRA), known as the “Honest Pricing Law” or “Hidden Fees” statute. SB 478 is a broad “all-in” price transparency law that impacts how businesses display advertised prices. The law is designed to address “bait-and-switch advertising practices” including the display of lower advertised prices followed by unavoidable fees (i.e., “hidden fees” or “junk fees”) that are disclosed at later stages of the buying process (referred to as “drip pricing”) or that are displayed in smaller, finer print. The law went into effect on July 1, 2024.
Similar to the FTC’s November 2023 proposed Rule on Unfair or Deceptive Fees, the California law requires advertising, displaying or offering a price for a good or service to include all mandatory fees or charges except (i) taxes or fees imposed by the government; or (ii) postage or carriage charges reasonably and actually incurred to ship physical goods to the consumer. See Cal. Civ. Code § 1770(a)(29)(A). “Mandatory fees” is not defined in the statute but covers unavoidable fees consumers must pay as part of a purchase transaction. These mandatory fees must be included in the advertised price of the good or service. Charges for additional, contingent or optional services do not need to be included.
The new law regulates how prices are advertised, displayed or offered by a broad range of businesses selling goods or offering services to consumers including event tickets, short-term rentals, hotels, restaurants and food delivery. The new law also exempts or lessens the restrictions for certain entities and industries that are already subject to laws governing pricing—including car dealers, rental car companies and food delivery platforms—provided that those entities comply with the applicable laws governing pricing for their industry. The law does not address algorithmic or dynamic pricing.
According to recent guidance published by the California Department of Justice, “the price a Californian sees should be the price they pay.” The guidance, delivered in the form of FAQs, clarified:
- The statute is not a price control law. It does not dictate prices a company can charge or what may be included in the price.
- Companies may not disclose additional required fees before a consumer finalizes a transaction or list one advertised price and state separately that an additional percentage or variable fee will apply. The price listed must be the full price the consumer is required to pay.
- While shipping charges need not be included, mandatory handling charges must be included in the total, all-in price.
- Mandatory charges used to pay business costs, such as security, rent, salary, healthcare insurance or employee benefits must be included in the total, all-in price.
- Companies may inform consumers that the total, all-in advertised price includes certain mandatory fees or charges. But this law does not require companies to provide a breakdown of the various fees or charges included in the listed or advertised prices. (But such disclosure would be well-advised).
- Fees for optional services or features or fees that are contingent on certain later conduct by the consumer need not be included in the advertised price. E.g., fee for returning rented equipment after the deadline, charges for smoking in a non-smoking hotel room, voluntary tips or gratuities.
- If the company does not know how much it will charge the consumer for goods or services, including all mandatory fees, at the beginning of a transaction, the company “should wait to display a price until they know how much they will charge.”
- Companies can advertise discounts (e.g., “half price after 4 p.m.”). Advertisements that mention discounts—but do not list a price—do not violate the law. Companies that charge a price that is less than the advertised price do not violate the law.
On June 29, just days before the effective date of SB 478, SB 1524 was passed to address concern by restaurants regarding the impact of SB 478 on restaurant menu pricing and charges. This new law states that SB 478 does not apply to a mandatory fee or charge for individual food or beverage items sold directly by a restaurant, bar, food concession, grocery store, or grocery delivery service so long as any mandatory fee or charge is “clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.” See Cal. Civ. Code § 1770(a)(29)(D)(ii). This exemption does not apply to food delivery platforms. Beginning on July 1, 2025, “clearly and conspicuously” will mean “a larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.” See Cal. Civ. Code § 1770(c) (citing Cal. Civ. Code Ann. § 1791(u)). Companies seeking to qualify for this exemption will have a year to comply with this new standard.
Failure to comply with the provisions of the CLRA entitles a consumer to actual damages (which are at least $1,000 in class actions), restitution, punitive damages, injunctive relief and attorneys’ fees. See Cal. Civ. Code § 1780. Additionally, if certain requirements are met, senior citizens and disabled persons can recover up to $5,000. See Cal. Civ. Code § 1780(b). Companies also face the prospect of government enforcement, which could result in civil penalties up to $2,500 per violation, as conduct that violates the new provisions of the CLRA may violate California’s Unfair Competition Law.
The CLRA is not the only price transparency law that went into effect on July 1, 2024. California also enacted a price transparency law directed at businesses that offer short-term lodging. All price displays, including advertisements, must include the room rate as well as all mandatory fees and charges, except government fees or taxes. See Cal. Bus. & Prof. Code § 17568.6(a)(1). In addition, at some point before consumers reserve a stay, companies must also include in the total price, all government taxes and fees. “Short-term lodging” includes any hotel, motel, bed and breakfast inn or other transient lodging as well as any short-term rental or residential properties that visitors can rent for 30 days or less. See Id. at § 17568.6(b). This law does not contain a private right of action, but is subject to government enforcement. The statute carries civil penalties up to $10,000 per violation where a company or person “knew or should have known that it has advertised, displayed, or offered a room rate in violation of this section.” Id. at § 17568.6(e)(1).
Why It Matters
These new California laws will have a profound impact on price displays and advertised pricing. Many businesses will need to make significant changes to their websites and advertisements in order to comply. The CLRA amendment raises practical concerns for businesses on compliance, such as how to comply where mandatory fees are not assessed on a per item basis (e.g., per order) or where it may not be known what mandatory fees will be charged to the consumer when pricing is first displayed. The Plaintiff’s bar has already begun filing “drip pricing” class action lawsuits in California following the enactment of these new laws, and government enforcement is expected.
These issues are not just limited to California. These laws are part of a larger evolving trend taking aim at “junk fees” or “hidden fees,” including by the FTC and other states, such as Alaska, Arizona, Connecticut, Colorado, Hawaii, Illinois, Massachusetts, New York, North Carolina, Ohio, Pennsylvania and Rhode Island. Businesses should consider taking a holistic approach to compliance by reviewing their current practices on mandatory fees or charges to ensure they are in compliance with California and other laws and should consider risk mitigation strategies, such as new or revised disclosures and mandatory arbitration and class action waivers.