Early Lawsuits Indicate Strict Enforcement of California’s ‘Drip Pricing’ Law

California Senate Bill 478 (SB 478), also known as the Honest Pricing Act or Hidden Fees Act, 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 does not include all mandatory fees or charges, other than certain government taxes and fees or reasonable shipping costs. Businesses that violate the law may be subject to civil penalties, lawsuits, and injunctions under the Consumer Legal Remedies Act (“CLRA”) and other consumer protection laws. In this article, we provide an overview of the law, discuss recent class action lawsuits that have been filed, and offer some suggestions on how to comply with the law and minimize your risks.

Understanding the New Honest Pricing Law

SB 478 applies to the sale or rental of most goods and services for a consumer’s personal use, such as event tickets, short-term rentals, hotels, restaurants, and food delivery. The law does not apply to the purchase or rental of goods or services for commercial use, or to certain other specified transactions and industries that are already subject to other pricing laws. The law also does not limit the 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 be the total price the consumer is required to pay, excluding only government-imposed taxes and/or fees 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 subsequent consumer behavior. For example, mandatory fees or charges may include a service fee, resort fee, convenience fee, handling fee, or automatic gratuity. A business cannot comply with the law by simply disclosing that additional fees will apply later, or by disclosing additional fees before the consumer completes the transaction. The law also does not permit a business to advertise a price and separately state that an additional percentage fee will apply. A business must include all mandatory fees or charges in initial and subsequent pricing statements.

The law provides certain exceptions and exemptions for certain businesses and fees. For example, the law does not apply to food delivery platforms that list prices charged by a restaurant from which they deliver food, provided they comply with other requirements of the Business and Professions Code. The law also does not apply to broadband Internet access service providers that comply with broadband product labeling requirements adopted by the Federal Communications Commission. The law also provides exemptions for certain financial entities, vehicle rental companies, dealerships, and lessors that are subject to other disclosure requirements under federal or state law. In addition, the law does not prohibit businesses from offering discounts or charging customers less than the advertised price.

The cost of non-compliance

SB 478 amends the CLRA to add trickle pricing as an unfair or deceptive act or practice. The CLRA allows consumers who suffer harm as a result of a violation of the law to sue 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 attorneys’ fees.

The CLRA requires consumers to notify the business of the alleged violation and demand a 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 laws, such as the Unfair Competition Act (“UCL”) and the False Advertising Act (“FAL”), which prohibit unfair, illegal, or fraudulent business acts or practices and false or misleading advertising.

The First Class Action Lawsuits, From Theme Parks to Hotel Rooms to Contact Lenses

Since SB 478 went into effect, numerous class action lawsuits have been filed against businesses alleging violations of the law. These lawsuits target businesses across industries. In one, for example, the plaintiff alleged that an amusement park advertised a ticket price 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 a room rate price but added a mandatory fee, such as a resort fee or destination fee, at the end of the booking process. And in yet another, the plaintiff alleged that the price of contact lenses he placed in his shopping 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 attorneys’ fees.

These cases were filed recently and are in their early stages, so time will tell whether they have merit, but they serve as an important reminder for companies to proactively address their pricing policies and practices.

Navigating the new pricing landscape

Businesses that sell or rent 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 risks, businesses should consider implementing policies to:

• Identify and include all mandatory fees or charges in the advertised, displayed, or quoted price for a good or service, other than government-imposed taxes or fees or shipping charges for physical goods.
• Avoid using separate line items or percentage fees that are not optional or conditional on consumers.
• Provide clear and visible information on the total price and the breakdown of fees or charges included in the price.
• Ensure consistency and accuracy of pricing statements across all platforms and channels, such as websites, mobile apps, social media, emails, print, etc.
• Monitor and update prices regularly to reflect any changes in fees or charges.
• Train and educate employees and agents on pricing policies and procedures.

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

Harrison Brown is a commercial litigation partner at Blank Rome, an Am Law 100 firm with 16 offices and more than 700 attorneys and principals providing a full range of legal and advocacy services to clients operating throughout the United States and around the world.

Ana Tagvoryan is a business litigation partner at Blank Rome.

Erica Graves is a commercial litigation partner at Blank Rome.