Key Takeaways:

• All required fees or charges must be included into the total price for a good or service that is displayed to a consumer.
• Fees for optional services or features do not need to be included in the advertised or listed price.
• Fees or charges that are contingent on certain later conduct by a consumer are not mandatory and do not need to be included in the advertised or listed price.

As noted in our recent client alert and blog, many legal commentators and those in the business community speculated that the California Department of Justice, Office of the Attorney General would issue guidance on SB 478. On May 8, 2024, the Office of the Attorney General did indeed issue such guidance through its Frequently Asked Questions (FAQs) on SB 478. In its guidance, the Office of the Attorney General made clear that the only way for covered businesses to comply with the law is to include all required fees or charges in the total price for a good or service that is displayed or listed to the consumer. In other words, covered businesses cannot merely provide conspicuous disclosure of a fee or charge at the outset of a transaction only to include the total price with the fee or charge at the end of the transaction.

The Office of the Attorney General also confirmed that SB 478 applies to virtually all industries, including hotels and restaurants—despite previous speculation from some prognosticators that restaurants should be understood to be beyond the scope of the law.

In its FAQs, the Office of the Attorney General provides guidance in response to 25 separate hypothetical questions, ranging from general to specific. While there is still uncertainty as to the law’s application in certain scenarios, the guidance provides some certainty for businesses seeking to comply with SB 478. Below, we summarize several of the most notable FAQs that are likely to have the most significant impact on companies seeking to comply with the new law.

• While SB 478 does not limit the types of fees a business can charge, the listed or advertised price must include the full amount that a consumer must pay for that good or service. Thus, a business cannot comply with this law by either (i) disclosing additional required fees before a consumer finalizes a transaction; (ii) advertising a price that is less than what a consumer will actually have to pay, but disclosing that additional fees will be added; or (iii) advertising one price and separately stating that an additional percentage fee will apply.
• However, businesses can comply with SB 478 by advertising the total price for a good or service and then separately noting that the total price includes certain fees and charges.
• Fees for optional services or features do not need to be included in the advertised or listed price. Accordingly, businesses can plausibly characterize fees or charges as voluntary or nonmandatory in order to remove a fee or charge from SB 478’s scope. Businesses should be cognizant, however, that if they characterize the fee as voluntary or nonmandatory, it may engender risk of litigation under California’s Unfair Competition Law or other statutes.
• Fees or charges 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 or listed price.
• Businesses that do not know how much they will charge a customer at the beginning of the transaction should wait to display a price until they know how much the charge to the consumer will be.

Lastly, the Office of the Attorney General advised that it does not expect its initial enforcement of SB 478 to focus on existing fees that are paid directly and entirely by a restaurant to its workers, such as an automatic gratuity that a restaurant charges for groups of eight or more customers. However, the guidance is quick to note that businesses may still be liable in private actions.

With SB 478 set to take effect on July 1, businesses should review any and all mandatory charges or fees imposed on consumers in light of the FAQs to make sure they do not run afoul of the new law.

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