Since July 1, when California’s “Honest Pricing Law” or “Hidden Fees Statute” became effective, the plaintiffs’ bar has filed more than a dozen complaints alleging violations of the statute. These complaints challenge alleged “junk fees” or “drip pricing” structures, including “service fees” charged by merchants through their websites, “processing fees” charged by third-party platforms, and various forms of credit card surcharges and debit card fees.
Background
California’s Honest Pricing Law requires “Total Price” disclosures and prohibits merchants from misrepresenting the nature and purpose of any charges or fees. Under the statute, “Total Price” means that the advertised prices of goods and services must include all mandatory charges and fees other than either government-imposed taxes or fees or postage or carriage charges “reasonably or actually incurred” to ship the physical good to the consumer.
FAQs released by the California Office of the Attorney General, discussed in a previous post, make it clear that while the law is not intended to limit how much a business can charge for a good or service, or the types of fees a business may want to charge, the posted price must include all amounts the consumer will be required to pay.
For example, under the Honest Pricing Law, if in the past a business added a standalone “service fee” to all online purchases after a buyer reached an order confirmation page, that business must now include the amount of the service fee in the price of the product initially advertised to the consumer.
A similar “Junk Fee Rule” proposed by the Federal Trade Commission (FTC) in 2023, that also requires “Total Price” disclosure and prohibits misleading or undisclosed fees, is pending finalization.
The Defendants
The first wave of class actions utilizing the California law challenges the imposition of fees for “service,” “processing,” “convenience,” credit card surcharges, and other, similar fees. Several of these cases involve restaurants and retailers, alleged to have added a variety of different fees to transactions involving consumers who realized they paid such fees only after looking at their receipts.
Some ticket sellers face allegations that consumers purchasing admission tickets to various events were not apprised of “processing” or similar fees appearing on the checkout page, at the end of the transaction.
When Is a Fee Optional or Mandatory?
A few of the cases attack credit card surcharges added by retailers at the end of a transaction to cover credit card processing costs. As we wrote in a previous blog post, surcharges present a less clear-cut case of how the Total Price disclosure requirement should be applied, particularly when the surcharge is tied to a consumer’s choice of payment method.
If a retailer adds a 3% surcharge to the bills of consumers who choose to pay with credit cards, but does not add any surcharge when consumers pay with cash or debit cards, does the retailer still need to raise its advertised prices to reflect the 3% credit card surcharge? California’s Honest Pricing Law only requires “mandatory fees [and] charges” to be included in the Total Price disclosure (emphasis added). The surcharge is mandatory only if the consumer uses a credit card. Businesses can’t charge a fee for the use of a debit card.
One notable case involves a $0.35 fee tacked on by the defendant to each PIN debit card purchase made at certain California convenience stores. According to the plaintiff, the fees were disclosed only after the customer had selected items and started the checkout process.
These stores allegedly did not apply a similar surcharge when a cash or a credit card was used to pay. Even so, the plaintiff alleged that the PIN debit card surcharge violated the Honest Pricing Law’s Total Price disclosure requirement because it was a “drip pricing scheme” that manipulated consumers into continuing with a purchase, even if a cheaper price may be available, because “[o]nce a consumer decides what to buy, he is unlikely to depart from that decision because of the additional cognitive effort involved.”
Lawyers for the plaintiffs also argued that not all consumers have a credit card to use as an alternative, and the withdrawal fees charged by in-store ATMs might result in consumers actually paying higher fees in order to use cash as an alternative; thus, some consumers are essentially pushed into paying the PIN debit card surcharge as the least harmful option. (Side note: The complaint did not raise Durbin Amendment prohibitions on charging fees to use debit cards.)
Optional Living Wage Surcharge
A second notable case involves a defendant that charged an “Optional 3% Living Wage Surcharge” on all purchases at the defendant’s bookstore. The defendant’s policy for charging this fee was to automatically add it to each purchase unless the purchaser opted out of paying it. Additionally, if it was not removed at the time of purchase, the defendant could refund it within 30 days of the purchase.
Essentially, the plaintiff argued that a fee can be optional, and therefore is not subject to the law’s Total Price disclosure requirement, only if a consumer must “explicitly provide . . . consent” for the fee to be added to a purchase. More prominent disclosure upfront by the store owner that all prices displayed would be subject to the fee might have mitigated the claim.
We expect cases to continue to roll in. How arguments unfold and courts make decisions based on the facts of these cases should be of interest to merchants engaged in all forms of sales.
