California

On October 7, 2023, California Governor Gavin Newsom signed SB 478 into law, which amended the California Consumers Legal Remedies Act (“CLRA”) to ban “junk” fees, codified at California Civil Code Section 1770(a)(29)(A).  This law is designed to eliminate “drip pricing,” or the practice of “advertising a price that is less than the actual price that a consumer will have to pay for a good or service.”  Specifically, as of July 1, 2024, it makes illegal the practice of advertising a low initial price for a product and then adding fees later in the checkout process by requiring “all mandatory fees” to be included in the total price that is advertised, displayed, or offered to consumers.  However, the listed or advertised price does not need to include government taxes and/or fees on the transaction, such as sales tax.  In addition, the listed or advertised price does not need to include shipping costs for physical goods.

Shortly before SB 478 became effective on July 1, 2024, the California Legislature passed an exemption to its mandatory-fee disclosure requirements for restaurants, bars, food concessions, and similar businesses through SB 1524.  This so-called “restaurant exemption” (SB 1524) was signed into law by Governor Newsom on June 29, 2024, just two days before SB 478 became effective.  SB 1524 allows restaurants, bars, food concessions, and similar businesses to exclude a mandatory fee from the total advertised prices, as long as any such mandatory fee is “clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item” that is being advertised, displayed, or offered.  Cal. Civ. Code § 1770(a)(29)(D)(ii) (emphasis added).

“Clearly and Conspicuously Displayed” Requirement

Notably, by July 1, 2025, “any disclosure, advertisement, or notice that is required to be ‘clearly’ or ‘clearly and conspicuously’ made must have text that is ‘clear and conspicuous,’ as defined in subdivision (u) of [California Civil Code] Section 1791.”  Id. at § 1770(c).  This means “a larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.”  Id. at § 1791(u).  Ultimately, SB 478 and SB 1524 became effective on July 1, 2024, but Civil Code Section 1791(u)’s requirements for “clear and conspicuous” text will not be incorporated into these “junk fee” rules until July 1, 2025.  In the intervening period, there may be some confusion as to what constitutes a “clear and conspicuous” disclosure for purposes of California Civil Code Section 1770(a)(29)(D)(ii).

“Explanation of its Purpose” Requirement

The amended CLRA does not provide guidance for what constitutes an “explanation of [the fee’s] purpose.”  However, businesses should consider developing best practices for accurately and sufficiently describing such fees (including their use or purpose) to avoid risk and exposure under the CLRA.

As with other alleged violations of the CLRA, claims may be brought on an individual or class-wide basis.  Successful plaintiffs are entitled to:  (a) actual damages or $1,000, whichever is greater per violation; (b) an order enjoining the violative business practice; (c) restitution; (d) punitive damages; (e) attorneys’ fees; and(f) any other relief the court deems proper.

Outlook

California’s crackdown on “junk” fees highlights a growing focus by legislators and regulators to protect consumers from deceptive fees and unfair pricing practices.  These laws will inevitably spawn a surge of consumer actions.  In light of this evolving legal and regulatory landscape, companies should conduct a review of and proactively manage their pricing and disclosure practices with the goal of avoiding and/or successfully defending against enforcement scrutiny or consumer lawsuits, maintaining customer trust, and ensuring business integrity.  This is particularly true of SB 478 and SB 1524, which remain open to interpretation.

Dentons routinely monitors litigation and regulatory trends in consumer protection laws, including those relating to marketing and advertising of prices.  Dentons’ team is here to assist clients in assessing compliance issues and in handling regulatory inquiries, threatened enforcement actions, and litigation in this evolving environment.

This is an update to our previously published alert in March.