SB 478: California Law Bans Hidden Fees in Advertising

California SB 478 bans hidden fees in advertising, requiring upfront disclosure of all mandatory costs for products and services. The law, effective July 1, 2024, applies to most businesses serving California customers, with limited exceptions for taxes and shipping.

By Douglas Wade, Attorney

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Table of Contents

1. Highlights

2. The Goal and Impact of SB 478

3. Implementation of SB 478

Highlights

Senate Bill 478 in California will make it illegal for companies to impose hidden surcharges for products and services as of 1^st July 2024.
It is against the law to market a product at a low price only to have it later subject to the required or additional fees.
SB 478 has broad applicability and affects almost all businesses that deal with Californian customers.

Starting on July 1, 2024, California SB 478 (Senate Bill 478) will forbid hidden costs for products and services. The California Civil Code’s Section 1770(a)(29) revision to the California Legal Remedies Act seeks to outlaw “drip pricing,” which is the practice of promoting a price lower than what a customer will actually pay for a commodity or service.

SB 478 prohibits advertising a product at an attractive rate only to have it later subject to required or additional fees. Crucially, the rule is wide-ranging and will affect almost every company that engages in significant business dealings with California customers.

The Goal and Impact of SB 478

SB 478, to put it simply, prohibits hidden fees. Often called “junk fees,” hidden expenses happen when a merchant utilizes a cheap headline price to draw in a buyer and then reveals additional necessary fees in tiny print or other inevitable charges afterward in the purchasing process.

Beginning July 1, 2024, every purchase expense must be included in the initial cost of the item and declared at the beginning of a transaction. SB 478 expands the list of deceptive and unfair practices and acts that are prohibited by the Consumer Legal Remedies Act. It also makes it illegal to advertise, exhibit, or present a price for a product or service that excludes all required costs or charges, with the exception of taxes or fees levied by government entities on the purchase.

With the exception of shipping charges and any applicable taxes or fees, the price that is displayed to customers must reflect the entire amount that they must pay.

Violators may be prosecuted individually or as a class, and they will be held accountable for

$1,000 or actual damages, whichever is higher, for each infraction
Reimbursement
Punitive damages
Legal fees
Remedy through injunction
Any further remedy the court determines is appropriate

SB 478 covers almost every California company that sells or leases products and services that are intended for customers’ personal use, as well as companies that target California customers. The law covers a wide range of well-known businesses, such as food delivery services, hotels, restaurants, short-term rentals, and event tickets. The few exceptions to conformance mainly cover specific government taxes & shipping expenses, such as “postage or transportation charges that are going to be fairly and truly incurred to transport the tangible good to the customer.”

SB 478 was created to encourage openness in California’s buying and selling of products and services by shielding customers from unexpected taxes and fees that were not initially included in the cost of the purchase. However, it is neither a law that controls prices, nor does it restrict the kinds or amounts of charges that a company may impose. Additionally, companies are not obligated to include costs for extra features or services in the price they advertise. The quoted price must only include required fees.

Before bringing a lawsuit, a customer who believes a business has violated SB 478 must inform the company of the alleged infraction and request that the business stop the practice. Only if the company fails to correct the alleged breach within 30 days may the customer file a lawsuit. The statute of limitations for these claims is three years.

Implementation of SB 478

FAQs about SB 478 were released by the Attorney General’s Office. Below is a summary of a few significant things learned from the frequently asked questions:

Advertising: The entire amount that the customer has to shell out must match the price that is offered to them. Companies are not allowed to disclose additional fees before a customer completes a transaction in order to ensure compliance with SB 478. In the same way, companies are not allowed to advertise a price that’s lower than what a customer would really pay, even if they disclose that there will be additional costs, or publish a price and then separately state that there will be a supplementary fee.
Shipping and Storage: The quoted price must include handling fees. A fair shipping fee can be excluded from the company’s advertised pricing.
Platforms for food delivery: The price of the shipping service must match the total cost of the service when it is offered on a meal delivery platform. SB 478 has no bearing on meal delivery services that display the costs incurred by the restaurant through which they deliver. Section 22598 of the Business & Professions Code still applies to them.
Required Restaurant Fees: Restaurants are required to include mandatory charges in the price that is displayed. This covers non-voluntary gratuity payments as well. However, it is not anticipated that the California Department of Justice will concentrate its initial enforcement efforts on current fees that are paid to employees directly and exclusively by a restaurant, such as automatic gratuities.
Discounts: Companies that give discounts or charge clients less than the listed amount are not breaking the law. The only thing that SB 478 forbids is the promotion of a price that is lower than what a consumer must pay.
Resale of services and goods: SB 478 covers the resale of products and services, including event tickets.
Unknown expenses: The DOJ advises businesses that are unsure of the amount they will charge a consumer at the start of a transaction to wait before displaying a price until they are certain of the cost of the commodity or service.

Companies should thoroughly examine their marketing and promotion strategies in order to guarantee that SB 478 is being followed.

Have a quick question? We answered nearly 2000 FAQs.

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SB 478: California Law Bans Hidden Fees in Advertising

Highlights

The Goal and Impact of SB 478

Implementation of SB 478

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