Mark S. Adams is the go-to senior lawyer in JMBM’s hospitality litigation team for assessing legal exposure, pursuing legitimate claims, and defending a client’s rights involving hospitality matters.
Jim Butler caught up with Mark to find out what all the fuss is about over California’s Junk Fee law (SB 478) and a proposed amendment by SB 1524 that has consumer advocates for transparent consumer prices in an uproar.
Jim Butler: As a hospitality litigator and advisor, you have been at the forefront in junk fee matters for many years, and have written extensively about the latest developments. Tell us what all the fuss is about concerning the California Junk Fee Law.
Mark S. Adams: In October 2023, California passed a law (SB 478) that declared junk fees to be a prohibited, misleading business practice. Anyone who advertises a price for goods or services must provide the total cost on first contact. In other words, drip pricing is illegal. Sellers cannot use a come-on price to get attention with later disclosure of additional mandatory fees or charges.
California was the first state in the country to adopt such a comprehensive law, and it was widely hailed as a consumer victory. However, the substantive provisions of the California Junk Fee law are scheduled to become effective on July 1, 2024. And on June 6, 2024, William Dodd (with the support of the California Restaurant Association) introduced SB 1524 to exempt the restaurant industry from the California Junk Fee Law.
Jim Butler: Isn’t this blatant preference of special interest legislation over consumer protection?
Mark S. Adams: I have seen some strong criticism of the proposed SB 1524 as special interest legislation gutting landmark consumer protection. It certainly does make the playing field uneven. We have heard complaints from many other businesses affected by SB 478 who are not getting similar benefits. Just ask hotel owners or ticket sales companies.
Before Senator Dodd’s latest proposal, there were a couple of exemptions in SB 478 for certain highly regulated businesses who comply with their primary regulator’s detailed rules (such as broadband services complying with FTC regulations, or financial entities complying with relevant regulations such as the Financial Code, Truth in Lending or the Federal Reserve Act).
But SB 1524 is an outright exemption from SB 478 for any “items sold by a restaurant, bar, or other food service provider, or pursuant to a contract for banquet or catering services.”
The bill would permit drip pricing, as long as the additional mandatory fees are conspicuously set out in the advertisement, menu or other display.
Jim Butler: Doesn’t that provision gut SB 478?
Mark S. Adams: Yes and no. It does exempt the restaurant industry from SB 478’s ban on junk fees, as long as the service charge or administrative fee or health compliance charge is disclosed. The consumer is not entitled to get the total cost on first exposure to price, as she would be if looking at a promotion for a hotel stay. Some people feel this is a violation of the honest pricing or transparent pricing mandate behind the reform legislation.
But unless further amended, as of July 1, 2024, SB 478 will affect every other business dealing with California consumers. Of course, most of these other affected businesses feels this is unfair. Most of them disclose various mandatory fees somewhere in the sale process. It is just that they disclose them after the initial advertised price, and after the consumer has invested time in researching the goods or services, or filling in required information to get to a form. Hiding the additional fees just frustrates open competition and makes it difficult for consumers to make wise decisions.
SB 478 is only gutted as to the restaurant industry. It applies to everyone else. Is that fair? Does that serve the public?
I guess we will have to see what the California legislature decides.
California DOJ SB 478 FAQs
Anticipating the effectiveness of the law, on May 8, 2024, the California Department of Justice released a set of SB 478 Frequently Asked Questions (SB 478 FAQs) to provide guidance on the law.
Although these SB 478 FAQs may become moot as to restaurants, they will continue to apply to all other businesses, unless exempted.
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