Starting July 1, businesses transacting with California consumers must include “all mandatory fees or charges” in advertised prices.

TAKEAWAYS

• California’s self-proclaimed “most effective in the nation” ban on drip pricing goes into effect on July 1, 2024.
• Businesses that fail to disclose all mandatory fees or charges when advertising a price to a California consumer may face significant civil penalties and class action lawsuits.
• California’s action is similar to initiatives being advanced in other states to eliminate junk fees and complements federal efforts by the Consumer Financial Protection Bureau and Federal Trade Commission.

Last October, California Gov. Gavin Newsom signed SB 478 into law. Effective July 1, 2024, the bill expands California’s already far-reaching consumer protection statute—the Consumer Legal Remedies Act (California Civil Code § 1750 et seq.) (CLRA)—to ban “drip pricing,” or “advertising a price that is less than the actual price that a consumer will have to pay for a good or service.” The term “drip pricing” refers to the practice of including additional undisclosed fees to a final bill, whereas the term “junk fees” refers to surcharges in a final bill that are unexpected or frivolous.

California’s New Prohibition on Drip Pricing
SB 478 amends the CLRA to add “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges”—also known as drip pricing—to the existing list of prohibited unfair or deceptive practices. There are two exceptions where mandatory fees or charges may be displayed separately from the advertised price: (1) government taxes or fees and (2) shipping charges “that will be reasonably and actually incurred.”

The legislative findings clarify that the new language does not prohibit methods of determining prices, such as algorithmic or dynamic pricing, but rather regulates “how prices are advertised, displayed, or offered.” However, the legislation does not define what fees are “mandatory” and must be included in any advertised price, which almost certainly will be the subject of future litigation.

Unless an exception applies, all businesses transacting with California consumers must comply with the CLRA, including hotels, restaurants and ticket sale platforms. The law includes narrow carveouts for certain already regulated industries, such as broadband internet access service providers, financial entities, rental car companies, car dealerships, air carriers and food delivery companies.

The CLRA and the new prohibition on drip pricing apply broadly to practices “undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer.” Notably, businesses could be in violation of the law even if a transaction is not completed.

Businesses that fail to advertise, display or offer prices for goods or services inclusive of all mandatory fees or charges may violate the CLRA and face considerable monetary penalties. As with all CLRA claims, each violation of the new prohibition on drip pricing can result in:

• actual damages, but no less than $1,000;
• an order enjoining the methods, acts or practices;
• restitution of property;
• punitive damages;
• attorney fees; and
• any other relief that a court deems proper.

Federal Campaign to End Junk Fees
California’s prohibition on drip pricing comes on the heels of a significant federal campaign to crack down on “junk,” or surprise, add-on fees. Beginning with the Consumer Financial Protection Bureau’s (CFPB) efforts to curb certain overdraft and depositor fees, President Biden announced his administration’s junk fee initiative on October 26, 2022. In his 2023 State of the Union address, he highlighted the Junk Fee Prevention Act (S. 916/H.R. 2463). While the Junk Fee Prevention Act is still making its way through Congress, the Federal Trade Commission (FTC) has proposed a blanket, industry-neutral rule that declares the use of “hidden” and “misleading” fees to be unfair and deceptive practices (87 FR 67413).

Looking Ahead
While California claims that it “now has the most effective piece of legislation in the nation to tackle this problem,” in line with the federal government’s priorities, other states are implementing restrictions on drip pricing and junk fees. For example, in New York, Arts and Cultural Affairs Law Section 25.07(4) was enacted on June 30, 2022, to combat drip pricing in the entertainment industry, and in Connecticut, state senators recently introduced Senate Bill No. 15 that would require upfront fee disclosures for certain industries and services. Businesses would be wise to review their advertising practices to ensure compliance with state and federal law and to follow the progress of the FTC’s forthcoming rule.

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