New AG Guidance Clarifies Scope of California’s “Hidden Fees” Ban

On May 8, 2024, the California Attorney General’s Office issued highly anticipated guidance on Senate Bill 478 (SB 478), also known as the “Hidden Fees Statute.” This law, set to go into effect on July 1, 2024, seeks to put an end to “hidden” fees. SB 478 will amend the California Consumer Legal Remedies Act (CLRA) to prohibit “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges.” In other words, the advertised price for a good or service must include all mandatory fees that will be charged to the consumer, excluding only government-imposed taxes or fees and reasonable shipping costs. A related law, Assembly Bill 537 (AB 537), is also slated for July 2024 and is specific to California’s lodging industry. This bill specifies that room rates for short-term lodging must encompass all fees and charges required for a stay, again excluding only government-imposed taxes and fees.

AG Guidance

With these laws set to go into effect in less than two months, businesses were eager for additional guidance to inform what steps need to be taken to ensure compliance. The AG guidance issued on SB 478 clarifies that the law will apply to virtually all California businesses that sell or lease goods and services to consumers for personal use, such as event tickets (including the resale of goods such as event tickets on online platforms), short-term rentals, hotels, restaurants, and food delivery. The law does not 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 guidance cautions that it is not enough for a business to disclose that additional fees will be added later, or to disclose additional required fees before a consumer finalizes a transaction. All mandatory fees must be included in the full price the first time the price is advertised or disclosed (and whenever the price is stated thereafter). A business will not be able to advertise a price with the caveat that it does not know how much it will ultimately charge a customer. Instead, the AG’s guidance counsels that if businesses do not know how much they will charge the consumer at the beginning of the transaction, they should wait to display a price until they know how much they will charge.

The AG guidance confirms certain practices that are acceptable under the law. For instance, the law does not limit what types of fees a business can charge—and as long as the advertised price includes all mandatory fees that will be included in the final sale to the consumer, a business is free to charge whatever amount it wants for the good or service. While mandatory fees must be included, fees for optional services or features need not be included in the advertised price. Likewise, fees that are contingent on certain later conduct by a consumer that may or may not occur, such as a fee for returning rented equipment after the deadline to do so, are not mandatory and therefore do not need to be included in the advertised price. Businesses are also not prohibited from providing a subsequent breakdown of the various fees or charges that are included in its listed or advertised price.

Potential Implications for Businesses

Once the law goes into effect on July 1, claims alleging violations of SB 478 under the CLRA may be brought on an individual or a class-wide basis. 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. Further, the legislative history of SB 478 notes that the conduct covered by the new law would also violate California’s Unfair Competition Law (UCL). Under the UCL, available remedies include civil penalties of up $2,500 per violation, injunctive relief, and restitution for affected consumers.[1] An action to enforce California’s AB 537 may similarly be brought by city attorneys, district attorneys, county counsels, or the Attorney General, and carries a maximum civil penalty of $10,000.

The AG guidance for SB 478 notes that the Department of Justice does not expect that its initial enforcement efforts will focus on existing fees that are paid directly and entirely by a restaurant to its workers, but notes that restaurants may still be liable in private suits. The DOJ states that it considers “many factors” when making enforcement decisions. Businesses have until July 1, 2024, to ensure their business practices are compliant with SB 478 and AB 537 or risk facing suits under these new laws.

[1] Civil penalties under the UCL cannot be sought on a class-wide basis in a private class action.