The Price is Not Right: Early Lawsuits Signal Strict Enforcement of California’s New 'Drip Pricing' Law
California Senate Bill 478 (SB 478), also known as the Honest Pricing Law or the Hidden Fees Statute, 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 doesn't include all mandatory fees or charges, other than certain government taxes and fees or reasonable shipping costs. Businesses that violate the law may face civil penalties, lawsuits, and injunctive relief under the Consumer Legal Remedies Act (“CLRA”) and other consumer protection statutes. In this article, we provide an overview of the law, discuss recent class action lawsuits which have been filed, and offer some suggestions on how to comply with the law and minimize risk.
Understanding the New Honest Pricing Law
SB 478 applies to the sale or lease of most goods and services that are for a consumer’s personal use, such as event tickets, short-term rentals, hotels, and restaurants. The law doesn't 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 law also does not limit what 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 must be the full price that the consumer is required to pay, excluding only taxes and/or fees imposed by the government 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 later conduct by consumers. For example, a mandatory fee or charge may include a service fee, a resort fee, a convenience fee, a handling fee, or an automatic gratuity. A business may not comply with the law by simply disclosing that additional fees will apply later, or by disclosing additional fees before the consumer finalizes the transaction. The law arguably also does not allow a business to advertise one price and separately state that an additional percentage fee will apply. The law requires a business to include all mandatory fees or charges in the initial and subsequent price statements.
The law provides some exceptions and carveouts for certain businesses and fees. For example, the law doesn't apply to food delivery platforms that list the prices charged by a restaurant from which they deliver food, as long as they comply with other requirements under the Business and Professions Code. The law also doesn't apply to broadband internet access service providers that comply with the broadband consumer label requirements adopted by the Federal Communications Commission. The law also provides exemptions for certain financial entities, vehicle rental companies, dealerships, and leases that are subject to other disclosure requirements under federal or state law. Additionally, the law does not prohibit businesses from offering discounts or charging customers less than the advertised price.
The Cost of Noncompliance
SB 478 amends the CLRA to add drip pricing as an unlawful unfair or deceptive act or practice. The CLRA allows consumers who suffer damage as a result of a violation of the law to bring an action against 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 attorney’s fees and costs.
The CLRA requires consumers to notify the business of the alleged violation and demand 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 statutes, such as the Unfair Competition Law (“UCL”) and the False Advertising Law (“FAL”), which prohibit unfair, unlawful, or fraudulent business acts or practices and false or misleading advertising.
Early Class Action Litigation, From Theme Parks to Hotel Rooms and Contact Lenses
Since SB 478 went into effect, a stream of class action lawsuits have been filed against businesses alleging violations of the law. The lawsuits target businesses from every industry. In one, for example, the plaintiff alleged that a theme park advertised one price for the ticket, 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 one price for the room rate, but added mandatory fees, such as a resort fee or a destination fee, at the end of the booking process. And, in yet another, the plaintiff alleged that the price for the contact lenses the plaintiff had put in his 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 attorney’s fees.
These cases were only recently filed and are in their early stages, so time will tell if they have any merit, but they serve as an important reminder to businesses to proactively address their pricing disclosures and practices.
Navigating the New Pricing Landscape
Businesses that sell or lease 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 risk, businesses should consider implementing policies to:
- Identify and include all mandatory fees or charges in the advertised, displayed or offered price for a good or service, other than taxes or fees imposed by the government or shipping costs for physical goods.
- Avoid use of separate line items or percentage fees that are not optional or contingent for consumers.
- Provide clear and conspicuous disclosures of the total price and the breakdown of the fees or charges included in the price.
- Ensure consistency and accuracy of price statements across all platforms and channels, such as websites, mobile apps, social media, email, print, etc.
- Monitor and update pricing regularly to reflect any changes in fees or charges.
- Train and educate the marketing department and other stakeholders on the pricing policies and procedures.
We strongly suggest that businesses consult with legal counsel to evaluate the applicability and compliance of SB 478 and other consumer protection laws to their specific businesses and industries.
Harrison Brown is a partner, business litigation, at Blank Rome, an Am Law 100 firm with 16 offices and more than 700 attorneys and principals who provide a full range of legal and advocacy services to clients operating in the United States and around the world.
Ana Tagvoryan is a partner, business litigation, at Blank Rome.
Erica Graves is a partner, business litigation, at Blank Rome.
Harrison Brown represents companies and executives facing consumer class actions, mass arbitration, and other major civil litigation in various areas, including telemarketing and communications, consumer protection, unfair competition, and false and deceptive advertising. Harrison’s areas of experience include successfully defending class actions involving telemarketing under the federal Telephone Consumer Protection Act (“TCPA”) and Florida’s Telephone Solicitation Act (“FTSA”), the Federal Trade Commission Act and California’s Unfair Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”), Illinois’ Biometric Information Privacy Act (“BIPA”), California’s Song-Beverly Credit Card Act, chatbot and wiretapping litigation under California’s Invasion of Privacy Act (“CIPA”), and California’s Automatic Renewal Law (“ARL”). Harrison has secured early dismissal of multiple class action lawsuits prior to class certification, protecting sensitive customer lists from premature disclosure.
Harrison has assisted businesses in virtually every industry, including retailers, distributors, food products and agriculture, banks, investment firms, hotels, and car dealers. He is well versed in Title III of the Americans with Disabilities Act (“ADA”) and California’s Unruh Civil Rights Act and has obtained multiple judgments prior to discovery in favor of clients facing website and physical accessibility lawsuits. An experienced advocate, Harrison also counsels and helps companies navigate a wide range of business matters and challenges, including fraud, breach of contract, and partnership disputes.
Harrison has assisted clients in jurisdictions throughout the country, including federal and state trial courts, appellate courts, and in administrative proceedings before the Federal Communications Commission (“FCC”).
Harrison has been recognized as a Southern California Super Lawyers “Rising Star” in class actions by Super Lawyers every year since 2019. As part of his extensive background in consumer protection and privacy laws, he regularly advises clients in advertising, retail, e-commerce, and related risk mitigation strategies under federal and state laws and regulations.
Ana Tagvoryan is a high-stakes corporate litigator with almost two decades of experience advising, counseling, and defending business clients in consumer-facing litigation and enforcement actions in state and federal courts across the nation. Her complex corporate litigation and compliance-related practice focuses on current issues presented for clients with consumer-facing businesses in retail, media, hospitality, technology, banking, and food & beverage. Ana’s nationwide practice routinely involves solving issues and defending claims related to consumer fraud, advertising, labeling, data privacy, cybersecurity, online and mobile marketing, pricing, and related intra- and inter-state commerce and e-commerce issues.
Ana is also the chair of the Privacy Class Action Defense group, which handles privacy-related cases involving wiretapping, data breaches, biometrics, telemarketing, call recording, data handling and sharing, and other consumer privacy matters. In addition, Ana’s team routinely litigates the ever-changing wave of claims dealing with auto-renewing subscription offers, e-commerce business practices, and federal & state consumer protection laws.
Ana serves as a trusted adviser and business partner to many clients who operate consumer-facing businesses. With regard to both mitigation of risk and litigation of claims, Ana’s clients regard her as strategic and creative; they trust her commonsense approach to problem-solving and appreciate her professional dedication.
Litigation
Ana has a reputable track record for successfully defeating threatened and actual claims at every stage of litigation. She has succeeded in bringing early dispositive issues before the courts and saving costs associated with discovery, and is skilled in early and efficient dispute resolution, including mediation and class action settlements. Ana and her team have secured orders of affirmation or reversal from Courts of Appeals and the U.S. Supreme Court on key issues and defenses on behalf of various companies, making precedent and good law in jurisdictions across the nation.
Ana has extensive experience with state and federal consumer protection statutes, such as: California and related states’ Unfair Competition Law, False Advertising Act, Consumer Legal Remedies Act, Invasion of Privacy Act, Consumer Privacy Rights Act, and Automatic Renewal Law; and federal statutes including the Federal Wiretap Act, Telephone Consumer Protection Act (“TCPA”), the Fair Credit Reporting Act, Stored Communications Act, Fair and Accurate Credit Transactions Act, Video Privacy and Protection Act, Magnuson-Moss Warranty Act, and U.S. federal and state CAN-SPAM laws. In addition, Ana routinely handles claims under the Illinois Biometric Information Privacy Act, Michigan Privacy Protection Act, Florida Telephone Sales Act, Florida Security of Communications Act, Pennsylvania Wiretapping and Electronic Surveillance Act, and Federal Trade Commission and state agency investigations and claims.
Compliance
Ana’s team routinely advises clients with respect to e-commerce data handling and disclosure practices, data privacy and data breach, and compliance with federal and state consumer laws across various industries, including retail, media, and e-commerce. Her compliance practice includes insight into vendor and software provider licenses and agreements, product labeling, online marketing and advertising, and related issues.
Teaching and Professional Engagements
Ana has served on various legal and professional organizations and lectured extensively on current events facing in-house counsel and business executives. She also regularly writes in leading industry publications concerning consumer protection and litigation trends, compliance insights, and future legislation. (See Publications.) Ana is currently active with the Atlantic Legal Foundation and sits on its advisory board.
Outside the Firm
Ana is an ardent indoor cyclist and coffee enthusiast, always looking for the newest and best trends in the things that help her give her best to her three kids, husband, and clients.
Erica is a skilled litigator who focuses her practice on defending advertising injury and consumer fraud actions, as well as other consumer class actions and business litigation. She represents clients across a diverse array of industries, including food and beverage, cosmetics, retail, fashion, entertainment, supplements, shipping, renewable energy, and construction. Erica’s breadth of experience enables her to successfully represent clients at all stages of litigation. Recently, Erica was part of a trial team that secured victory for a Fortune 500 paint and coatings company by invalidating a competitor’s patents and obtaining a full jury verdict on the client’s behalf.
To help her clients head off litigation and government enforcement actions, Erica regularly advises companies about compliance with new and ongoing regulations relating to advertising, labeling, environmental claims, and other consumer practices. Erica created and helps manage Blank Rome’s Labeling and Advertising industry group, gathering and focusing the firm’s experience and knowledge for companies of all sizes, including start-ups. Erica has represented large and small companies in an array of complex matters, including contract disputes, consumer fraud litigation, environmental enforcement actions, and False Claims Act litigation.
As a lifelong proponent of social justice, Erica proudly maintains a robust pro bono practice, assisting individuals and non-profit organizations in areas including intellectual property, civil rights, pardons, and housing advocacy.
While at Pepperdine University School of Law, Erica externed for Justice Eileen C. Moore at the California Court of Appeal, Fourth District. She also served as managing editor for the Pepperdine Law Review.
Prior to law school, Erica worked in the Napa Valley wine industry for six years, making, analyzing, and selling wine for some of the Valley’s most prestigious labels. She also earned a science degree specializing in microbiology and immunology from the University of Melbourne, Australia.
