Hotel Law Blog

6 June 2024
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Click here for the latest articles on Junk Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Pricing transparency without hidden mandatory junk fees. Does this apply to restaurants too? New California proposed law (SB 1524 ) says “No!” Can this be right?

by

Mark S. Adams
Hotel Dispute Lawyer, Partner & Senior Member
JMBM’s Global Hospitality Group

For more than 20 years consumers have complained about hidden mandatory fees, junk fees, resort fees, destination fees, service fees, administration fees, health fees, surcharges, connection fees, and similar charges, whatever they are called.

California’s new “Honest Pricing Law,” SB 478, cracks down on hidden fees, requiring businesses to advertise and list a price that includes all mandatory charges. This applies to most goods and services, but a new bill, SB 1524, proposes an exception for restaurants.

SB 478: Transparent Pricing and the End of Junk Fees

SB 478, taking effect July 1, 2024, prohibits businesses from advertising a misleadingly low price and then tacking on hidden mandatory fees at checkout. This includes service charges, resort fees, and other surprise surcharges. Consumers have long complained about these “junk fees,” and SB 478 aims to create price transparency. California’s Civil Code Section 1770(a)(29), amended by SB 478, prohibits unfair business practices like misrepresenting product qualities. Importantly, it requires businesses to advertise prices that include all mandatory fees, excluding only government taxes and reasonable shipping costs. This transparency aims to protect consumers from unexpected charges. Certain industries, like those complying with FCC regulations for internet access or those already subject to federal and state disclosure laws for financial services, are exempt from this specific provision.

SB 1524: A Special Exception for Restaurants?

Introduced on June 6, 2024, SB 1524 would allow restaurants to continue adding mandatory service charges, gratuities, and other fees on top of their advertised prices, as long as these fees are clearly disclosed on menus or advertisements. The proposed amendment to Civil Code 1770, would add a new subsection 29(D) to exempt restaurants from the transparent pricing mandate of in that section by adding this language:

(D)  For purposes of this paragraph, “advertising, displaying,  or offering a price for a good or service” does not include advertising or displaying the price of individual food or beverage items sold by a restaurant, bar, or other food service provider, or sold pursuant to a contract for banquet or catering services, provided that any service charge, mandatory gratuity, or other mandatory fee or charge is clearly and conspicuously displayed on the advertisement, menu, or other display.

The Debate: Transparency vs. Industry Flexibility

This exemption has raised concerns about consumer protection and a level playing field for businesses. SB 1524’s proponents, including the restaurant industry and the labor union UNITE HERE, argue that it allows restaurants flexibility in covering costs like employee benefits. Opponents argue that this exemption undermines the core purpose of SB 478 – price transparency for consumers. They question why restaurants should be treated differently from other businesses and point out the Federal Trade Commission’s stance that hidden fees are deceptive practices. CONTINUE READING →

17 May 2024
Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Consumers hate drip pricing and junk fees

Consumers and politicians have complained about drip pricing and junk fees for more than 20 years. There’s a close connection between the two, but they are not exactly the same thing.

• Junk fees: These are generally any unexpected, often mandatory fees added to the advertised price of a good or service. They can be hidden or poorly explained, making it difficult for consumers to anticipate the true cost. Examples include service fees on concert tickets, credit card processing fees, or resort fees at hotels.
• Drip pricing: This is a specific tactic used to introduce junk fees. It involves advertising a lower headline price initially and then revealing additional mandatory fees later in the purchasing process, often in small print or during checkout. This creates a misleading impression of the actual cost and makes it harder for consumers to compare prices accurately.

So, all drip pricing involves junk fees, but not all junk fees involve drip pricing. For instance, a credit card with an “electronic service fee” added – even if clearly advertised — would not be considered drip pricing, even though it is a type of a junk fee.

Here’s an analogy: Drip pricing is like revealing all the ingredients in a recipe one by one, after having already taken a bite. Junk fees are like the unexpected or ill-defined ingredients that might not have been listed at all.

The first reports of  hotels charging resort fees (or similar charges) can be traced back to the year 2000. We are not sure if hotels invented the practice or were just amongst the early innovators. But in any event, the various mandatory fees with various labels soon became widespread throughout the hospitality industry and other industries including hotels, restaurants, food delivery services, live-event ticket sales, transportation such as car rentals and airlines, and many others.

FTC concern about drip pricing, junk fees, and deceptive practices

On November 9, 2023, the Federal Trade Commission (FTC) issued notice of a proposed rule on “Unfair or Deceptive Fees.” This development is discussed in the Blog below by my partner, Mark S. Adams.

FTC Cracks Down on Hidden Fees:
Upfront Pricing Is Coming

by

Mark S. Adams
Hotel Dispute Lawyer, Partner & Senior Member
JMBM’s Global Hospitality Group

Federal Trade Commission (FTC) is proposing a new weapon in the fight against hidden fees, surprise charges that inflate the cost of everything from hotel rooms and restaurant charges to concert tickets and college tuition. This proposed rule addresses prevalent fee practices that are unlawful under Section 5 of the FTC Act, 15 U.S.C. 45, and declares them to be unfair or deceptive to consumers. This “junk fee” crackdown would impact a wide range of industries, aiming to bring transparency to how businesses disclose their true costs.  Generally, the proposed rule makes two changes: Upfront Pricing and Deceptive Fees. CONTINUE READING →

10 May 2024
Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Consumers and politicians have complained about junk fees for more than 20 years. The first reports of hotels charging resort fees (or similar charges) can be traced back to the year 2000. We are not sure if hotels invented the practice or were just amongst the early innovators. But in any event, the various mandatory fees with various labels soon became widespread throughout the hospitality industry and other industries, including hotels, restaurants, food delivery services, live-event ticket sales, transportation such as car rentals and airlines, and many others.

In the hotel industry, these hidden fees have different names, such as resort fees, destination fees, or surcharges. Other industries have used labels such as service fees, delivery fees, installation fees, and administrative fees, just to name a few. But they are all “junk fees”—mandatory hidden fees that are not fully disclosed at initial customer contact but only revealed later in the sales process.

As of July 1, 2024, California will implement a high-profile law to ban such junk fees unless they are specifically exempted. Here are the details.

Junk Fees are banned in California as of July 1, 2024!
What does the California Junk Fee Law (SB 478) mean?

by

Mark S. Adams
Hotel Dispute Lawyer, Partner & Senior Member
JMBM’s Global Hospitality Group

California businesses brace for Senate Bill 478‘s impact. SB 478 was signed by Governor Newsom in October 2023 and became effective July 1, 2024. It cracks down on hidden fees, often referred to as “junk fees” and “drip pricing” (because the full cost is only disclosed drip by drip). It will likely change how businesses approach pricing strategies. Many say it is part of a nationwide response to President Joe Biden’s call to eliminate Junk Fees.

What’s in a name? SB 478 or California Junk Fee Law?

The confusion starts with how to reference the new law. Many refer to it by the Senate Bill number assigned when it was first introduced in the California Senate, and the SB 478 moniker continues to be popular with many, even after signed into law.

We also like to call it the California Junk Fee Law because SB 478 does not describe the focus of the legislation. It is really a collection of amendments to the various sections of the California Civil Code, Government Code, and Vehicle Code, as described in more detail below.

Many consumer groups and plaintiffs’ lawyers seem to refer to it as amendments to the California Consumers Legal Remedies Act, or the CRLA. Their focus is on enforcing the law and the remedies given to the government and consumers to bring private legal actions.

Still, others refer to it by the underlying prohibited practices, calling it the California law on drip pricing, hidden fees, bait-and-switch, unfair competition, unfair business practices, consumer fraud, and the like. These advocates generally include California plaintiffs’ lawyers and state and local prosecutors who largely rely on the California Unfair Competition Law (UCL) and the Consumers Legal Remedies Act (CELA) The new California Junk Fee Law is expected to facilitate new claims against businesses under these laws.

We may use all these terms interchangeably, but we tend to prefer the California Junk Fee Law. CONTINUE READING →