California Law Bans Hidden Fees for Goods and Services Starting July 1, 2024

California Senate Bill 478 (SB 478) will prohibit hidden fees for goods and services beginning July 1, 2024. The amendment to the California Legal Remedies Act (California Civil Code Section 1770(a)(29)) aims to eliminate "drip pricing," which involves advertising a price that is less than the actual price that a consumer will have to pay for a good or service. SB 478 makes it illegal to advertise a low price for a product, only for that product to be subject to additional or mandatory fees later. Importantly, the law is broad in its reach and will apply to nearly all businesses conducting meaningful activity directed to California consumers.

Purpose and Effects of SB 478

Simply put, SB 478 bans hidden fees. Hidden fees, also referred to as "junk fees," occur when a seller uses a low headline price to attract a customer and only later discloses additional required fees in smaller print, or reveals additional unavoidable charges later in the buying process.

As of July 1, 2024, all fees for purchases must be disclosed at the outset of a transaction and represented in the initial purchase price. SB 478 adds to the list of unfair and deceptive acts and practices prohibited under the Consumer Legal Remedies Act and makes it unlawful to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction. The price advertised to consumers must be the full price the consumer is required to pay, excluding only taxes and/or fees imposed by the government and shipping costs.

Violations may be brought on an individual or classwide basis, with violators subject to:

• actual damages or $1,000 (whichever is greater per violation)
• restitution
• punitive damages
• attorney fees
• injunctive relief
• any other relief the court deems proper

SB 478 applies to nearly all California businesses and those targeting California consumers that sell or lease goods and services for a consumer's personal use. The law applies to many prominent industries, including event tickets, short-term rentals, hotels, restaurants and food delivery platforms. Compliance exceptions are limited and exempt only certain government taxes and shipping costs like "postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer."

Designed to promote transparency in the buying and selling of goods and services in California, SB 478 protects consumers from being blindsided by taxes and fees not originally listed in the purchase price. It is not, however, a price control law and does not limit what type of fees or the amount of fees that a business can charge. Businesses are also not required to include fees for additional services or features in the advertised price. Only mandatory fees must be included in the advertised price.

A consumer alleging a violation of SB 478 must notify the business of its alleged violation and ask the business to correct or rectify the practice prior to filing suit. The consumer can bring suit only if the business does not remedy the alleged violation within 30 days. Such claims have a three-year statute of limitations.

Enforcement of SB 478

The Office of the Attorney General issued FAQs on SB 478. Some key takeaways from the FAQs are outlined below.

• Advertising. The price advertised to consumers must be the full price that the customer is required to pay. Businesses cannot comply with SB 478 by disclosing additional required fees before a consumer finalizes a transaction. Similarly, businesses cannot comply with the law by advertising a price that is less than what a consumer will actually have to pay, even if disclosing that additional fees will be added, or by listing one price and separately stating that an additional percentage fee will apply.
• Shipping and Handling. Handling charges must be included in the advertised price. A business can exclude from its advertised price a reasonable shipping charge.
• Food Delivery Platforms. When a food delivery platform advertises the price of the delivery service, the advertised price must reflect the all-in price of the delivery service. Food delivery platforms that list the prices charged by a restaurant from which they deliver food are unaffected by SB 478. They remain subject to special requirements under Business and Professions Code Section 22598 et seq.
• Mandatory Restaurant Fees. Mandatory fees charged by restaurants must be included in the displayed price. This includes gratuity payments that are not voluntary. The California Department of Justice (DOJ), however, does not expect its initial enforcement efforts will focus on existing fees that are paid directly and entirely by a restaurant to its workers – i.e., automatic gratuities.
• Discounts. Businesses offering discounts or charging customers less than the advertised price do not violate the law. SB 478 only prohibits advertising a price that is less than what a customer is required to pay.
• Resale of Goods and Services. SB 478 applies to the resale of goods and services, including the resale of event tickets.
• Unknown Costs. If a business does not know how much it will charge a customer at the beginning of a transaction, the DOJ recommends the business wait to display a price until it knows how much the good or service will cost.

Prior to July 1, 2024, businesses should carefully review their advertising and marketing practices to help ensure compliance with SB 478.

For additional information on SB 478, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.