California’s Hidden Fee Ban: FAQs and Guidance

On July 1, 2024, California’s law banning hidden fees took effect. Under the Consumer Legal Remedies Act (CLRA), SB 478 provides that businesses transacting with California consumers may not apply additional fees or charges at checkout that were not disclosed in the advertised price, a practice also known as “drip pricing.” 

In May 2024, the California Attorney General’s office released a set of Frequently Asked Questions (FAQs) providing guidance for businesses on the new law. The FAQs reiterate the scope of the law and its intent to promote honest pricing by requiring businesses to display a single price that a consumer would pay, excluding taxes.

Who Does the Law Apply to:

• Businesses that sell or lease goods and services that are for California consumers’ personal use.
• Resellers of goods or services (i.e., event tickets and online platforms).

What Businesses Must Include in the Advertised Price:

• All amounts that the consumer will be required to pay. Fees for optional services or features do not need to be included.
• Businesses can exclude taxes or fees that the government imposes on the transaction.
• Businesses can exclude reasonable shipping costs for physical goods but must include handling charges in the advertised price.

Other Provisions:

• The hidden fees ban does not prohibit offering discounts to customers. However, businesses should never advertise a price that is less than what a customer will have to pay.
• Additionally, businesses may itemize the charges that make up the total advertised price they charge customers.
• If the total amount that the consumer will be charged is unclear at the beginning of a transaction, the business should delay displaying a price until the price is determined.

Amendments:

On the eve before the law took effect, California passed an amendment to the CLRA which modified the fee ban for individual food or beverage items sold directly to customers by restaurants, bars, grocery stores, or grocery delivery services. The amendment requires that these businesses post a clear and conspicuous disclosure of a mandatory fee or charge with an explanation of its purpose on any advertisement, menu, or other display.

Restaurants and similar businesses have until July 1, 2025, to comply with this requirement.

Businesses that do not transact with California consumers should be aware of consumer protection and price transparency developments in other jurisdictions.

New York’s Law

California is not the only state that businesses need to consider when it comes to how to disclose fees for products or services. In February 2024, New York state enacted a law requiring businesses to “clearly and conspicuously post the total price for using a credit card inclusive of the surcharge[.]” New York’s law provides businesses the option to pass along the actual cost of credit card processing fees to customers, provided they disclose the highest total price (excluding sales tax).

Under New York law, businesses may provide a discount for cash purchases as long as the advertised price is the higher price. Businesses should update their pricing claims to accurately reflect the total price customers will pay and discontinue separate line item surcharges that appear only on customer receipts, including convenience fees, processing fees and administration fees.

The New York State legislature is expected to expand its drip pricing legislation beyond credit card surcharges, similar to the new California law, in the next legislative session after it failed to pass the New York Junk Fee Prevention Act in its 2023-2024 Legislative Session.

Minnesota’s Law 

Effective January 1, 2025, a Minnesota law will require businesses to include mandatory fees in their advertised prices, including fees or surcharges that (i) must be paid in order to complete the transaction, (ii) a consumer cannot reasonably avoid, or (iii) a consumer would expect to pay when purchasing the goods or services advertised. Under Minnesota law, if the total amount that the consumer will be charged is unclear at the beginning of a transaction, the business can advertise the price with any mandatory fees and disclose that the total cost may vary based on variable factors (e.g., distance).

Like the CLRA, Minnesota includes industry-specific provisions. Any “food or beverage service establishment, including a hotel,” must include any automatic and mandatory gratuity charged in its advertisements. Delivery platforms must display the additional fee or percentage a consumer will be charged on the menu and include a subtotal page with the itemized menu costs and additional fees prior to checkout.

Take Action to Comply

Businesses subject to the amended CLRA should already be in compliance. If not, they should promptly remedy their use of drip pricing to avoid significant risk of consumer class action under the California law. Remedial action should include:

1. Ensuring that all advertised prices state the full price, including fees.
2. Review discount claims to ensure they reflect the actual price discount.
3. Review credit and cash pricing practices to ensure there are no credit card surcharges.

As the New York and Minnesota laws indicate, though, California is not the only state to be vigilant on these issues and we expect more states to follow. For detailed information on compliance please contact your Fenwick counsel.

*Taylor Muentener contributed to this alert