California’s prohibition on so-called “hidden” or “junk” fees in consumer transactions is set to take effect on July 1, 2024, with potentially wide-ranging ramifications for how prices are displayed or offered to consumers in the Golden State – and the potential for a significant wave of new class action litigation.
The law—often referred to by its bill number, SB 478—amends California’s Consumer Legal Remedies Act (“CLRA”) to restrict the prices and fees businesses can offer to California consumers. The basic prohibition is stated in simple terms: businesses can no longer “advertis[e], display[], or offer[] a price for a good or service that does not include all mandatory fees or charges” to consumers, with limited exceptions such as for sales tax and certain shipping charges. SB 478 § 3 (to be codified at Cal Civ. Code § 1770(a)(29)(A)). But this simple language generates numerous complexities. For example: Are clearly disclosed fees prohibited if not folded into the main price, or just fees not presented to consumers in close proximity (in both location and time) to the primary price? When is a fee “mandatory”? Can fees that are included in a price still be itemized?
The California Office of the Attorney General (“AG”) recently released guidance giving businesses some answers, at least as to how the AG is interpreting the law. According to the AG, even fees clearly disclosed up front are prohibited: “The price listed to the consumer must be the full price that the consumer is required to pay.” In other words, the consumer should not be required to do any math to determine the price of a good or service.
As for when fees are discretionary, not “mandatory,” and may be excluded from an advertised price, the AG’s guidance states: “Fees that are contingent on certain later conduct by a consumer . . . [or] fees for optional services or features do not need to be included in the advertised price.”
The AG also confirmed that businesses may still itemize charges taken into account in calculating a quoted price: “Businesses are free to explain how they set their prices or to subsequently itemize the charges that make up the total price that they charge customers.”
The AG’s guidance has already been followed by more recent legislative activity. On June 6th, one of SB 478’s authors introduced a bill that would, if enacted, allow restaurants and bars to still include service fees on their menus without folding those charges into their food and beverage pricing. However, the challenges the law poses for restaurants have parallels for many other businesses for whom legislative relief is not proposed.
Correctly navigating SB 478’s complexities will be of no small consequence for businesses transacting with California consumers. The CLRA, which we’ve written about before, is a favored statute invoked in consumer class actions brought under California law, and penalties available to aggrieved consumers include statutory damages of $1,000 for each violation. Cal. Civ. Code § 1780(a)(1).