California Issues Guidance on New Consumer Price Transparency Law

California's new consumer price transparency law, SB 478, which prohibits "drip pricing" and “junk fees,” will came into effect on July 1, 2024. This law mandates that businesses in California must advertise prices that include all mandatory fees or charges, excluding government-imposed taxes, fees, and postage or carriage charges.

In response to concerns from the restaurant industry about SB 478, the California Attorney General’s Office has released a FAQ to provide further guidance for affected businesses. Here are the key points from the FAQ:

Inclusive Pricing: Businesses are not allowed to list a base price with mandatory fees added separately (e.g., “$500+10%”). Simply stating that additional fees will be applied is not compliant. Advertised prices must include all mandatory charges.

Charge Breakdown: While the advertised price must include the full amount a consumer must pay, businesses can still provide a breakdown or explanation of charges.

Optional and Contingent Fees: Fees for optional services or features do not need to be included in the advertised price. Similarly, fees contingent on later actions by the consumer, like late fees or smoking fines, are not required to be included since they are not mandatory.

Variable Pricing: Businesses that cannot determine the full charge at the beginning of a transaction should delay displaying a price until they know the total amount they will charge.

Despite the helpful guidance, several questions remain unanswered. The FAQ does not clarify how businesses should handle optional fees or charges on a bill that consumers must opt out of. Additionally, there is uncertainty regarding transactions with variable or unknown prices at the outset. While the FAQ advises waiting to display a price until the total amount is known, this may not be practical in many situations. The FAQ also does not address the impact on the common restaurant practice of charging mandatory fees for large parties.