Gone are the days of hidden fees and tacked on surcharges in California. Starting July 1, 2024, SB478 prohibits businesses in California from adding automatic service charges onto consumer bills. The law applies to the sale or lease of most consumer goods, including hotel and restaurant fees.
Significantly, the laws requires transparency in the advertised price. This means that businesses must disclose all costs and fees upfront – no more surprises in your shopping cart before checkout, or that mandatory "large group" fee at restaurants. It's not even enough to disclose all the fees before the consumer finalizes the transaction or hits "buy". The total cost must be the advertised price, disclosed at the top of the funnel. Some exceptions apply, but they are limited to items such as mandatory sales tax, shipping and voluntary tips. Penalties are stiff: consumers can bring claims against businesses, with a max of $1,000 per violation, and consumers can recover attorneys' fees.
The law applies to brick and mortar as well as e-commerce players, including short-term rental and vacation homes apps, food delivery apps and online event ticket sellers –all industries that have drawn ire from consumers and regulators for imposing hidden fees and surcharges. And while the law and Attorney General Bonta's FAQs are clear that the advertised price must be the total price, the AG does not provide guidance with respect to transaction-level fees, surge-pricing, dynamic pricing and the like. For example, if a ticket vendor typically charges $20 per transaction, regardless of the number of tickets purchased, how does that provider advertise prices or otherwise allocate that price on a per product or per unit basis?
More regulation is on the horizon. Ten other states are advancing laws similar to SB478. On November 8, 2023, the Federal Trade Commission published a Proposed Rule on Unfair or Deceptive Fees, which is widely considered the federal counterparty to SB478. At least 19 states' AGs came out in support of the proposed rule. And, back in California, SB1490 (currently pending in the State Senate), is directed exclusively at food delivery apps and would require even greater price transparency with respect to food and menu prices. Drier days are ahead for drip pricing.
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