Now that California’s “Honest Pricing Law” or “Hidden Fees Statute” (SB-478) has been in effect for a few months, plaintiffs’ firms are beginning to file class action lawsuits against restaurants, retailers, and ticket sellers alleging violations of the law.  The lawsuits allege that such businesses utilize “junk fees” and “drip pricing” structures that include hidden service fees, processing fees, debit card fees, and credit card surcharges.  While the FAQs issued by the California Attorney General’s (AG) Office provide some clarity about the scope and applicability of the law, these cases present new questions to be litigated. 

For instance, some cases allege that retailers violate the law by adding credit card surcharges upon checkout but not when consumers pay with cash or debit cards.  The law requires businesses to include all mandatory fees or charges (excluding government taxes and shipping costs) in the advertised total price.  Other service fees, late fees, voluntary tips or gratuities, and credit card processing fees do not need to be included in the advertised price, and credit card processing fees in particular are generally not mandatory fees if consumers can pay via a different method (e.g. cash).  However, if a business only accepts credit cards as the form of payment, then the credit card fee is mandatory and should be included in the advertised price.

Another case involves a defendant that automatically charged an “optional” surcharge on consumer purchases, unless the consumers opted out of paying the surcharge, and if the consumer does not opt-out, then the defendant could refund the surcharge within 30 days of purchase.  The lawsuit argues that this violates the “Honest Pricing Law” because consumers do not provide explicit consent before the defendant applies the “optional” surcharge.  The FAQs do not provide additional guidance on whether consent is required before automatically applying “optional” surcharges upon purchase. 

Pending further litigation of these cases, businesses should consider their compliance obligations and below are some quick do’s and don’ts to get you started: 

• The law applies to consumer-facing businesses (e.g. ticket resales, short-term rentals, hotels, and restaurants), and exempts most B2B businesses and certain industries with regulated pricing laws (e.g. car dealers, rental car companies, and food delivery platforms).
• When food-delivery platforms advertise the price of their delivery services, they must advertise the full, all-in price. 
• Mandatory fees include mandatory charges to pay business costs, such as security, rent, salary, or healthcare insurance or benefits to employees. 
• It is advisable (but not required) to provide a breakdown of the various fees included in the advertised total price. 
• Government-imposed taxes and reasonable shipping fees may be excluded from the advertised price, but handling charges must be included. 
• If you are unsure about how much you will charge consumers, wait to display the total price until you know how much you will charge (e.g. only at the final checkout page). 
• Advertising discounts or coupons do not violate the law but should not be false or misleading. 
• Consider other state and federal laws regulating honest pricing and prohibiting the advertising of “junk fees” or “hidden fees,” such as the FTC Act.