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California Senate Bill 478 (SB 478), also known as the Honest Pricing Law or the Hidden Fees Statute, went into effect on July 1, 2024. The law targets so-called “drip pricing” and prohibits businesses from advertising, displaying or offering a price for a good or service that doesn't include all mandatory fees or charges, other than certain government taxes and fees or reasonable shipping costs. Businesses that violate the law may face civil penalties, lawsuits, and injunctive relief under the Consumer Legal Remedies Act (“CLRA”) and other consumer protection statutes. In this article, we provide an overview of the law, discuss recent class action lawsuits which have been filed, and offer some suggestions on how to comply with the law and minimize risk.

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Understanding the New Honest Pricing Law

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SB 478 applies to the sale or lease of most goods and services that are for a consumer’s personal use, such as event tickets, short-term rentals, hotels, and restaurants. The law doesn't apply to the purchase or lease of goods or services for commercial use, or to certain other specified transactions and industries that are already subject to other laws governing pricing. The law also does not limit what types of fees or charges a business can include in its total price, or how it can determine its prices, such as using algorithmic or dynamic pricing. However, the law requires that the price advertised, displayed or offered to consumers must be the full price that the consumer is required to pay, excluding only taxes and/or fees imposed by the government and shipping charges for physical goods.

The law defines “mandatory fees or charges” as those that consumers are required to pay without receiving optional or additional services or features, or that are not contingent on later conduct by consumers. For example, a mandatory fee or charge may include a service fee, a resort fee, a convenience fee, a handling fee, or an automatic gratuity. A business may not comply with the law by simply disclosing that additional fees will apply later, or by disclosing additional fees before the consumer finalizes the transaction. The law arguably also does not allow a business to advertise one price and separately state that an additional percentage fee will apply. The law requires a business to include all mandatory fees or charges in the initial and subsequent price statements.

The law provides some exceptions and carveouts for certain businesses and fees. For example, the law doesn't apply to food delivery platforms that list the prices charged by a restaurant from which they deliver food, as long as they comply with other requirements under the Business and Professions Code. The law also doesn't apply to broadband internet access service providers that comply with the broadband consumer label requirements adopted by the Federal Communications Commission. The law also provides exemptions for certain financial entities, vehicle rental companies, dealerships, and leases that are subject to other disclosure requirements under federal or state law. Additionally, the law does not prohibit businesses from offering discounts or charging customers less than the advertised price.

The Cost of Noncompliance

SB 478 amends the CLRA to add drip pricing as an unlawful unfair or deceptive act or practice. The CLRA allows consumers who suffer damage as a result of a violation of the law to bring an action against the business to recover or obtain various forms of relief, including actual damages or a minimum of $1,000 per violation in class actions, restitution, punitive damages, injunctive relief, and attorney’s fees and costs.

The CLRA requires consumers to notify the business of the alleged violation and demand correction or rectification before filing a lawsuit, and gives the business 30 days to respond and remedy the violation.

In addition to the CLRA, SB 478 may also implicate other consumer protection statutes, such as the Unfair Competition Law (“UCL”) and the False Advertising Law (“FAL”), which prohibit unfair, unlawful, or fraudulent business acts or practices and false or misleading advertising.

Early Class Action Litigation, From Theme Parks to Hotel Rooms and Contact Lenses

Since SB 478 went into effect, a stream of class action lawsuits have been filed against businesses alleging violations of the law. The lawsuits target businesses from every industry. In one, for example, the plaintiff alleged that a theme park advertised one price for the ticket, but added a mandatory “processing” fee at the end of the checkout process on its website. In another, the plaintiff alleged that a hotel advertised one price for the room rate, but added mandatory fees, such as a resort fee or a destination fee, at the end of the booking process. And, in yet another, the plaintiff alleged that the price for the contact lenses the plaintiff had put in his cart increased at the checkout page. In each case, the plaintiffs alleged that the practices violated the CLRA, the UCL, and the FAL, and sought damages, restitution, injunctive relief, and attorney’s fees.

These cases were only recently filed and are in their early stages, so time will tell if they have any merit, but they serve as an important reminder to businesses to proactively address their pricing disclosures and practices.

Navigating the New Pricing Landscape

Businesses that sell or lease goods or services to California consumers should review their advertising and pricing practices to ensure compliance with SB 478 and other consumer protection laws. To mitigate risk, businesses should consider implementing policies to:

Identify and include all mandatory fees or charges in the advertised, displayed or offered price for a good or service, other than taxes or fees imposed by the government or shipping costs for physical goods.

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Avoid use of separate line items or percentage fees that are not optional or contingent for consumers.

Provide clear and conspicuous disclosures of the total price and the breakdown of the fees or charges included in the price.

Ensure consistency and accuracy of price statements across all platforms and channels, such as websites, mobile apps, social media, email, print, etc.

Monitor and update pricing regularly to reflect any changes in fees or charges.

Train and educate the marketing department and other stakeholders on the pricing policies and procedures.

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We strongly suggest that businesses consult with legal counsel to evaluate the applicability and compliance of SB 478 and other consumer protection laws to their specific businesses and industries.

"The Price Is Not Right: Early Lawsuits Signal Strict Enforcement of California’s New ‘Drip Pricing’ Law," by Harrison Brown, Ana Tagvoryan, and Erica Graves was published in&nbsp;<a href="https://www.mytotalretail.com/article/the-price-is-not-right-early-lawsuits-signal-strict-enforcement-of-californias-new-drip-pricing-law/">Total Retail</a>&nbsp;on September 24, 2024.

The Price Is Not Right: Early Lawsuits Signal Strict Enforcement of California’s New ‘Drip Pricing’ Law

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The Price Is Not Right: Early Lawsuits Signal Strict Enforcement of California’s New ‘Drip Pricing’ Law

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