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California passed a controversial new consumer price transparency law (SB 478) last fall banning so-called "drip pricing" and “junk fees” across the State effective July 1, 2024. We discussed the requirements of the new law, as well as its companion AB 537 specifically targeting the hospitality industry, in a previous Compliance Matters. SB 478 generally prohibits California businesses from advertising a price that does not include all mandatory fees or charges, excluding government imposed taxes or fees and postage or carriage charges.
Following an uproar from the restaurant industry regarding the impact of SB 478 on established practices, the California Attorney General’s Office released a much anticipated FAQ providing further guidance to impacted businesses. Below is a summary of the key insights from the FAQ:
- The FAQ confirms that businesses cannot state a base price for a good or service with mandatory fees provided separately (e.g.,“$500+10%”). Simply disclosing that additional fees will be added is also noncompliant. Rather, any posted price must include all amounts that a consumer will be required to pay.
- Businesses are free to provide a breakdown or explanation of charges as long as the advertised price includes the full price that a consumer is required to pay.
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Fees for optional services or features do not need to be included in the advertised price. Likewise, fees that are contingent on later conduct by a consumer, such as late fees or a fee charged to the customer for smoking in a non-smoking room, do not need to be included in the advertised price because they are not mandatory.
- The FAQ provides that businesses that do not know how much they will charge a customer at the beginning of a transaction should wait to display a price until they know how much they will charge.
While the FAQ provides some helpful guidance to businesses looking to stay complaint, many questions remain unanswered. For example, the FAQ does not address the common practice of including optional fees or charges on a bill that require consumers to opt-out. Likewise, it is still unclear how businesses should handle transactions with variable and unknown prices at the beginning of the transaction. While the Attorney General’s Office takes the position in the FAQ that businesses should simply wait to display a price until the full amount is known, such a delay may be impractical in many circumstances. Another impracticality created by SB 478 that the FAQ fails to address is its impact on the common restaurant practice of charging mandatory fees for large parties.
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