iEffective July 1, 2024, new California Senate Bill 478 (SB 478)[1] bans the practice of “drip pricing,” where the price for product or service is advertised without including all mandatory fees and charges that consumers must pay.[2] This law applies to nearly all businesses that sell or lease goods and services to California consumers[3], excluding only commercial transactions and certain industries that are already subject to pricing regulations. The ramifications of SB 478 are likely to significantly impact advertising and pricing practices across various industries, including businesses outside of California.
SB 478 aims to eliminate hidden fees, often referred to as “junk fees,” by making it illegal to advertise, display, or offer a price that does not reflect the full amount consumers must pay, excluding taxes and shipping costs.[4] According to the California Attorney General’s Office, the law prohibits businesses from advertising “an artificially low headline price” to attract customers, only to “reveal additional unavoidable charges later in the buying process.”[5] The law is broad in scope, applying to nearly all businesses that market and sell goods and/or services to California consumers, including companies based in other states and online platforms.[6] However, restaurants are exempt from SB 478. Under SB 1524, signed into law on June 29, 2024, restaurants are not required to factor mandatory fees into menu item prices as long as those fees are “clearly and conspicuously” disclosed, with an explanation of their purpose, on the menu or advertisement.[7] The law also does not apply to business-to-business transactions or certain other specified transactions already subject to existing pricing laws.[8]
SB 478 does not limit the types or amount of fees that a business can charge, but is instead aimed at transparency in pricing.[9] In addition, fees for optional services or features (e.g., add-ons to a purchase offered at checkout) and contingent fees (e.g., e.g., late fees for equipment rentals) do not need to be included in the advertised price.[10] Only mandatory charges must be included in the price advertised to consumers.[11] Claims alleging violations of SB 478 under the Consumer Legal Remedies Act (CLRA) may be brought on an individual or a class-wide basis.[12] Remedies available for consumers who bring claims for violation of SB 478 include actual damages (with a minimum of $1,000 in class actions), restitution, injunctive relief, and attorneys’ fees.[13]
In 2022, New York passed similar targeted legislation requiring live event ticket sellers to disclose all fees and/or surcharges prior to the ticket being selected for purchase.[14] Similar legislation has been introduced in other states and in 2023, the Federal Trade Commission (FTC) also announced a notice of proposed rulemaking designed to prohibit drip pricing, specifically citing public concerns regarding hidden fees in the live event ticket market.[15]
Whereas prior legislation addressing drip pricing focused on the need for disclosure of all fees during the purchasing process, SB 478 arguably sets a higher standard by specifically requiring that the price as advertised to consumers, before the checkout process, must be the full price consumers will be required to pay – it is not sufficient for businesses to disclose additional fees separately from the list price. Similarly, in its notice of proposed rulemaking, the FTC states that its proposed rule would require that any offer, display or advertisement of a price to a consumer must include the maximum total of all fees and/or charges (other than shipping and taxes).[16] Other state agencies have taken a similar approach.[17] If these trends continue, SB 478 may serve as a bellwether for how legislators and regulators seek to curb drip pricing in the future.
Navigating the complexities of SB 478 and other emerging regulations requires careful attention to compliance details. Here are some practical steps and guidelines to help your business adhere to the new requirements:
Review and Update Pricing Structures: Ensure that all mandatory fees are included in the advertised prices. For example, if you offer a subscription service, make sure the total monthly cost, including any mandatory fees, is clearly stated in the initial price shown to consumers.
Industry-Specific Disclosures: Different industries may have unique requirements. Tailor your pricing disclosures to fit the specific needs and practices of your industry.
Clear and Conspicuous Language: Use straightforward language to disclose fees. For subscription services, include statements like “Total monthly cost includes a $5 service fee” directly next to the advertised price.
Regular Compliance Audits: Periodically review your pricing and advertising practices to ensure they remain in line with SB 478 and other applicable regulations. This proactive approach can help you identify and correct any issues before they lead to legal challenges.
Training and Education: Educate your marketing and sales teams about the requirements of SB 478. Provide training on how to properly disclose fees and structure advertisements to comply with the law.
By implementing these practical steps, your business can effectively navigate the requirements of SB 478, avoiding potential legal pitfalls and maintaining consumer trust. Our firm is here to assist with any specific compliance questions or concerns you may have, offering tailored advice to ensure your business meets all regulatory standards.
FOOTNOTES
[1] California Civil Code Section 1770(a)(29)).
[2] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[3] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[4] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[6] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[7] California Civil Code Section 1770(a)(29)(D)).
[8] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[9] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[10] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[11] https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf.
[12] California Civil Code Section 1780.
[13] California Civil Code Section 1780.
[14] New York Arts and Cultural Affairs Law Section 25.07.
[17] See, e.g., Code of Massachusetts Regulations, 940 CMR 38.00.
Betty Li, intern in the firm’s Century City office, also contributed to this article.
