Recently, a new wave of "all-in" price laws has emerged, mandating transparent pricing practices to ensure consumers are fully aware of the total cost of goods and services upfront.
For the hospitality sector, where fees and additional charges have long been commonplace, these developments signal a significant transformation. Navigating this new terrain requires keen attention to regulatory and statutory changes and a proactive approach to compliance. Here are some updates to keep in mind.
The FTC
The Federal Trade Commission (FTC) proposed a rule that would prohibit what the FTC calls "hidden fees" and "misleading fees."
Specifically, the proposed rule prohibits the advertising of any amount that a consumer may pay without clearly and conspicuously disclosing the "total price." In addition, if any other pricing information is included in the advertising, the total price must be disclosed more prominently than any other pricing information. The proposed rule defines "total price" as "the maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Good or Service, except that Shipping Charges and Government Charges may be excluded."
The proposed rule also prohibits "misleading fees." Specifically, the proposed rule prohibits advertisers from misrepresenting "the nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged."
In addition, the rule requires advertisers to clearly and conspicuously disclose, before an order is placed, "the nature and purpose of any amount a consumer may pay that is excluded from the Total Price, including the refundability of such fees and the identity of any good or service for which fees are charged."
The rule, if ultimately promulgated, could have a dramatic impact on how prices are advertised in the United States.
California
The State of California has a new law banning "junk fees," which went into effect on July 1, 2024. This "Honest Pricing Law" or "Hidden Fees Statute," SB 478, makes it illegal to advertise, display or offer a price for a good or service that does not include all mandatory fees or charges other than either of the following: (i) Taxes or fees imposed by a government on the transaction; or (ii) Postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.
Essentially, while a business can still set its prices for products or services, the advertised price must now reflect the total cost that a consumer will pay. The law also provides for certain other limited exceptions as well (such as allowing food delivery platforms to display restaurant menu pricing without including the platform's own charges).
The California Attorney General also issued a much-anticipated set of FAQs on the law, making clear that the scope covers the sale or lease of most consumer goods and services, including event tickets, accommodations, restaurants, and food delivery, and clarifying some of the industry's questions on implementation.
That said, per Senate Bill 1524, which was approved by the Governor and chaptered on June 29, 2024, SB 478 "(i) ... does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service..." However, the law instead requires that these businesses clearly and conspicuously display a mandatory fee or charge" with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.
Minnesota
A similar law in Minnesota takes effect January 1, 2025, and requires that all mandatory fees be included in an advertised price, other than taxes and shipping fees. However, under the Minnesota law, if a fee "is determined by consumer selections and preferences," a price may be advertised as long as the following are clearly and conspicuously disclosed: "(1) the factors that determine the total price, (2) any mandatory fees associated with the transaction, and (3) that the total cost of the services may vary."
A Note on Tips
Many of these laws do not affect tips or gratuities left by customers, since they are not mandatory. For example, the proposed FTC Rule states that optional fees, voluntary gratuities, and invitations to tip are specifically excluded. And the California Attorney General FAQs specifically said tips or gratuities left by customers are voluntary payments to workers, and thus are governed by other laws, including Labor Code section 350.
Industry-specific laws
In addition to the "all-in" pricing laws described above, there are also many proposed and some active sector-specific laws governing price displays, including in the hospitality space. For example, California's AB 537, which went into effect July 1, 2024, prohibits a place of short-term lodging from advertising or offering a room rate that does not include all fees or charges required to stay at the short-term lodging except taxes and fees imposed by a government on the stay, as specified and requires a place of short-term lodging to include in the total price to be paid, before the consumer reserves a stay, all taxes and fees imposed by a government on the stay.
Tackling Compliance
Navigating the complexities of the new "all-in" price laws will undoubtedly present challenges for businesses, particularly in the hospitality sector. Compliance will require a thorough understanding of the evolving rules, diligent implementation of transparent pricing practices, and constant vigilance to stay abreast of any updates.
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