29 June 2024
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Understanding California’s Landmark Junk Fee Law
Revisions to the Consumer Legal Remedies Act (CLRA)
Transparent pricing bans hidden fees and drip pricing
by
Jim Butler
Partner & Chair, JMBM’s Global Hospitality Group®
Mark S. Adams
Hotel Dispute Lawyer, Partner & Senior Member
JMBM’s Global Hospitality Group®
First, the nomenclature of the forbidden practices, then the names for the law, a summary of the latest events, and details of the final California Junk Fee Law. In this article, we will focus on the changes to the California Civil Code (CC), and particularly CC Section 1770) of the Consumer Legal Remedies Act (CC 1750, et eq.).
The bottom line: As of July 1, 2024, California’s new Junk Fee Law is a comprehensive transparency pricing law that eliminates hidden mandatory fees. It applies to all businesses in all industries, except for a few specific exceptions. Restaurants are exempted if they meet certain conditions. Restaurants may find compliance trickier than apparent at first glance, and even a modest consumer backlash for this special exemption may be harmful.
CA Governor signs SB 1524’s new Junk Fee Law with “Restaurant Exemption” (if certain tests are met). SB 478, SB 1524, and AB 537 all go effective July 1, 2024. Unfair business practices redefined in CC 1770.
California bans fees and practices known by many names — junk fees, hidden fees, mandatory fees, drip pricing, surcharges, resort fees, unfair and deceptive practices, bait and switch, and consumer fraud.
Names for the new 2024 California Junk Fee Law
There are so many names for the California law that is making big changes, primarily to Civil Code Section 1770. It may be helpful to list the most common names, which include:
- Consumer Legal Remedies Act (CLRA)
- California Junk Fee Law
- California Honest Pricing Law
- California Hidden Fees Statute
- California Transparency Law
- California SB 478
- California SB 1524
- California CC 1770
- California Unfair Business Practices
- California Unfair Competition Act
- The price you see is the price you pay
Don’t forget AB 537 and its $10,000 civil penalties.
In addition to the amendments to California CC 1770, another Junk Fee law effective July 1, 2024, was introduced by Assemblyman Berman. He had a bad experience with a hotel “resort fee” he encountered in his private life. It led him to introduce the new law which adds a new Section 17586.6 to the California Business and Professions Code (B&P Code).
It is nicknamed the California Resort Fee Bill. It requires upfront price disclosure on first contact with consumers of all mandatory fees for all hotels, motels, and other short-term lodging rentals for less than 30 days. It carries a civil penalty of not more than $10,000 per violation. It extends to any advertisement, display, or offer of either from or into California.
It is also referred to as B&P Code Section 17586.6, and the Transparency in Short-Term Lodging Prices Act.
Newsom signs SB 1524 amending California Junk Fee Law
Governor Gavin Newsom signed SB 1524 on Saturday, June 29. 2024. This last-minute act exempts Restaurants (as broadly defined in the bill) from California’s otherwise comprehensive ban on hidden fees and drip pricing. It became effective immediately because the legislature made it an “urgency statute.” That requires a measure that is “necessary for the immediate preservation of the public peace, health, or safety.”
The final provisions of the California Junk Fee Law primarily amend Civil Code Section 1770(a) of the Consumer Legal Remedies Act (CRLA)
The final amended law enacts the new California Junk Fee Law as of July 1, 2024, and it also creates the so-called Restaurant Exemption from the California Civil Code 1770(a)’s new prohibition on drip pricing. As mentioned, the Restaurant Exemption covers more than just restaurants. The critical provisions of the final law are below, with the new provisions highlighted in yellow. The Restaurant Exemption is in paragraph (D). (Click here for the complete text of law, as revised):
California Consumer Legal Remedies Act (CC 1750, et eq.)
CC 1770 (a) — [Section 1770 of the Civil Code declares that 29 enumerated acts are unlawful, and it also determines that they are “unfair methods of competition and unfair or deceptive acts or practices. . .”]
CC 1770 (a)(1)-(28) [Individual acts that violate Section 1770 (a)]
CC 1770 (a)(29) [Added by SB 478 and SB 1524]
(A) Advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges [except taxes or actual and reasonable delivery charges] . . .
(B) [This paragraph provides an exemption for certain persons regulated by the FCC and in compliance with such regulations.]
(C) [This paragraph provides an exemption for any “financial entity” subject to other specified laws or regulations, and which is required to file disclosures required by such laws. An example is the Truth in Lending Act.]
(D) (i) Subject to clause (ii), this paragraph does not apply to a mandatory fee or does not apply to a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service, or by means of a menu or contract for banquet or catering services that fully discloses the terms of service.
ii) A mandatory fee or charge under clause (i) shall be clearly and conspicuously displayed, with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.
. . .
CC 1770 (b) — As of July 1, 2025, any disclosure, advertisement, or notice that is required to be “clearly” or “clearly and conspicuously” made must have text that is “clear and conspicuous,” as defined in subdivision (u) of Section 1791.
Each mention in this article of “Restaurants” or the “Restaurant Exemption” refers to all businesses exempted under paragraph (D) above.
What is “clear” and “conspicuous”? The test for CC 1770(b) is in CC 1781(u)
Existing law in California CC 1791(u) sets out the definition of the clear and conspicuous disclosure required to claim the Restaurant Exemption. It reads as follows:
CC 1791(u) “Clear and conspicuous” and “clearly and conspicuously” means a larger type than the surrounding text, or in a contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. For an audio disclosure, “clear and conspicuous” and “clearly and conspicuously” means in a volume and cadence sufficient to be readily audible and understandable.
There are several questions as to the “clear and conspicuous” requirement, and also as to the impact of the July 1, 2025 effective date for compliance with CC 1791’s requirements to claim the Restaurant Exemption, but that is a topic for another day.
Background on the Restaurant Exemption
The California Junk Fee Law, including the amendments to the Consumer Legal Remedies Act (CLRA) or CC 1770, were adopted by the California legislature and signed by the Governor in October 2023. The law provided for a delay in effectiveness until July 1, 2024, to give businesses time to learn about the law and get ready for implementation.
This legislative about-face represented by the Restaurant Exemption has been described as a “whiplash reversal” in response to the politically powerful special interests of the California Restaurant Association and the UNITE HERE labor union.
In any event, the change in California’s Junk Fee Law was very sudden. Here is the timeline:
- October 2023 SB 478 was signed into law, but not effective until July 1, 2024.
- May 8, 2024, California Attorney General Rob Bonta issued guidelines (DOJ’s SB 478 FAQs) to help affected businesses. It stated (the obvious) that Junk Fee Law applied to virtually all businesses. Most of the information relates to general businesses, but it also included specific examples of how it applies to Restaurants.
- June 5, 2024, Senator Bill Dodd introduced SB 1524, exempting Restaurants (and related food services) from SB 478’s Honest Pricing Law. (It was a “gut and replace” on an existing SB 1524 bill about gambling regulation that had been passed by the Senate and was awaiting final approval in the Assembly. In less than a month, that amendment became SB 1524, amending the Consumer Legal Remedies Act — specifically Civil Code Section 1770(a).
- June 20, 2024, Assembly unanimously passes amended SB 1524.
- June 27, 2024, Senate unanimously passes the same amended bill as approved by the Assembly.
- June 29, 2024, Governor Newsom signs SB 1524, effective immediately. The operative date of the changes to Civil Code 1770(a) remains July 1, 2024.
Understanding CC 1770’s demand for transparent pricing in (almost) all businesses ban with a few exceptions, including the new Restaurant Exemption
Before the extraordinary, last-minute effort that created the Restaurant Exemption, the California Junk Fee Law (as enacted from SB 478) was widely hailed as the first comprehensive ban on drip pricing.
The broad prohibitions of CC 1770 (a) were comprehensive. They applied to virtually all businesses in all industries. The exceptions under the prior law were all for industries that were already heavily regulated by other government regulations such as the FCC Act, various banking laws, and the like.
The Restaurant Exemption is the first exception from 17770 (a) that is not justifiable because consumer protection is provided by other specialized regulatory agencies. In that sense, the Restaurant Exemption represents a break in a comprehensive reform.
The Restaurant Exemption: A gift or a Trojan Horse?
While many Restaurants and Bars are relieved by the exemption, there is considerable consumer sentiment against carveout to the new consumer protection law that requires pricing transparency and eliminates hidden mandatory fees and charges.
If mandatory hidden fees are banned for hotels, short-term rentals, ticket sellers, internet providers, and software companies, why should they be OK for Restaurants and Bars? What happened to the politicians’ promise that the law means that “the price you see, is the price you pay”?
Restaurants need to increase their revenues for profitably. If even 5% of consumers reduce their Restaurant purchases because of consumer backlash, where is the benefit to Restaurants? And there are likely many legal challenges Restaurants face when they seek to claim the Restaurant Exemption.
As lawyers representing owners, developers, lenders and operators of hotels and restaurants, we advise on compliance, options, and defense of claims. It is time for all players in the hospitality industry to seriously consider their mandatory fee policies.
For more information, please contact Mark Adams or Jim Butler as listed below:
Mark S. Adams, Hotel Dispute Lawyer, is an experienced trial lawyer and a senior member of JMBM’s Global Hospitality Group®. A primary focus of Mark’s practice is devoted to representing clients on hundreds of matters involving Hospitality Litigation, Arbitration & Dispute Resolution – from avoiding litigation to conducting complex, multi-state litigation, arbitration, and mediation.
Mark’s expertise is in business litigation involving contracts, corporate and partnership disputes, and hospitality disputes and litigation. On behalf of hotel and resort owners, Mark has successfully litigated the termination of long-term, no-cut, hotel management agreements, franchise agreements, fiduciary duty issues, investor-owner disputes, TOT assessments, and more. He has wide-ranging trial experience in various commercial disputes, including complex multi-party litigation and class actions. He has tried numerous cases in state courts, federal courts, and domestic and international arbitrations and is a frequent author and speaker on trial practice. Forbes, Reuters, and other publications have covered Mark’s trial wins. He obtained two of California’s 50 largest jury verdicts in the same year.
Mark has taken or defended nearly 1,000 depositions throughout North America, Europe, and the Middle East. The Wall Street Journal has quoted him as an expert on noncompete agreements. For more information, contact Mark at 949.623.7230 or markadams@jmbm.com.
This is Jim Butler, author of www.HotelLawBlog.com and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators, and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.
JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help.
For more recent articles written by Mark S. Adams, please see the following links:
Junk Fee Law: Exception for California restaurants moves forward
New Federal Junk Fee Law – The No Hidden FEES Act of 2023 (HR 6543)
Disclosing Mandatory Resort Fees – What Hoteliers Need to Know
The better way to resolve hotel contract disputes: Judicial Reference or Arbitration?
Should New York law govern your hospitality contract? How about Texas, California or Florida law?
Meet Mark S. Adams, Hotel Dispute Lawyer – Hospitality Litigation, Arbitration & Dispute Resolution
How Pennsylvania Resort Fees Settlements Could Play Out for US Hotel Industry
Force Majeure – Contract provisions and governing law are important
History & origins of Force Majeure as a contract defense
JMBM’s Global Hospitality Group® announces 5th edition of The HMA & Franchise Agreement Handbook
Hotel Lawyer on HMAs: “The shrinking terms of hotel management agreements”
Losing the expectation of privacy bit by bit, byte by byte