California’s “Junk Fee” Laws Spark Complex Compliance Challenges for Businesses

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California’s new “junk fee” laws have taken aim at hidden surcharges that inflate consumer costs — but while designed to improve transparency, the overlapping web of federal and state requirements has created new compliance headaches for businesses across industries. Companies operating in the Golden State now face dual obligations under both California law and recent federal regulations, each carrying distinct enforcement mechanisms and penalties.

A Nationwide Crackdown on Hidden Fees

The push to eliminate “junk fees” — hidden or misleading charges tacked onto the price of goods and services — has been a top priority for both state and federal regulators. The Federal Trade Commission (FTC) introduced its “junk fees” rule earlier this year, which officially took effect on May 12. The rule primarily targets industries notorious for extra surcharges, such as live event ticketing and short-term lodging.

Under the FTC’s rule, businesses are prohibited from using deceptive “bait-and-switch” pricing practices. The total cost — including taxes, mandatory surcharges, and any required fees — must be clearly disclosed before the consumer commits to a purchase. Optional add-ons can still be listed separately, but companies must provide clear, upfront explanations of what these charges are and how much they cost.

  

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The FTC’s goal is straightforward: consumers should never be surprised by higher costs at checkout. Yet, while this federal initiative covers specific sectors, its reach does not extend to all industries — a gap California lawmakers were quick to fill.

California’s SB 478 Expands Transparency Requirements

On July 1, 2024, California Senate Bill 478 (SB 478) took effect, creating one of the most comprehensive pricing transparency laws in the nation. Unlike the FTC’s rule, which focuses on a handful of industries, SB 478 applies broadly to nearly all goods and services offered for personal use within the state.

The law mandates that any advertised or listed price must reflect the full amount a consumer will pay — with only narrow exceptions for reasonable shipping costs and government-imposed taxes or fees. This “all-in pricing” model aims to prevent companies from luring customers with deceptively low base prices only to inflate the total cost at checkout.

Initially, SB 478 was so broad that it would have affected restaurants and bars, potentially forcing them to display menu prices that included service fees or surcharges. However, after pushback from the hospitality industry, lawmakers passed SB 1524 in June 2024, carving out an exemption for restaurants. Under this amendment, food and beverage businesses can still list mandatory charges separately, provided those fees are clearly and conspicuously disclosed on menus, signs, or digital price listings.

Dual Enforcement Creates Compliance Complexity

Where the federal and state regulations differ most significantly is in enforcement and legal exposure.

The FTC’s rule is enforced exclusively by the agency itself. Violators may face civil penalties and be required to refund consumers for improper charges. But California’s SB 478 raises the stakes dramatically: it allows for private enforcement. Consumers, as well as the California Attorney General, can bring lawsuits against businesses that violate the law. This opens the door to class actions, statutory damages, and the recovery of attorney’s fees — turning minor pricing missteps into major litigation risks.

For businesses operating nationally, this patchwork of overlapping rules means compliance can no longer be one-size-fits-all. What satisfies federal regulators may still fall short under California’s stricter standards. As legal experts warn, “California’s law doesn’t just follow the FTC’s playbook — it rewrites it.”

Steps Businesses Should Take Now

To minimize exposure under these overlapping laws, companies should act proactively and implement comprehensive compliance strategies. Recommended actions include:

• Conducting Pricing Audits: Review all pricing displays — including advertisements, websites, invoices, and checkout screens — to ensure that disclosed prices represent the total cost payable by consumers.
• Training Internal Teams: Marketing, sales, and customer support teams must understand what constitutes “junk fees” and how to properly disclose all charges in compliance with both state and federal laws.
• Documenting Compliance Efforts: Maintain records of internal reviews, pricing structures, and disclosures to demonstrate good faith efforts to comply.
• Monitoring Updates and Industry Guidance: Regulations and interpretations are evolving. Businesses should stay informed about new guidance from California’s Attorney General and the FTC.
• Reviewing Legal Exposure: Because California’s law allows for private lawsuits, companies should evaluate their risk tolerance and consider whether insurance policies adequately cover class action litigation.

Transparency as a Legal and Competitive Imperative

While the growing web of regulation may seem burdensome, many experts view this shift as an opportunity. Businesses that lead with transparency can build consumer trust, strengthen their brand image, and reduce reputational risk.

California’s aggressive stance is likely to influence other states — and potentially prompt future expansions of the FTC’s rule. Companies that adapt early and embrace transparent pricing models will be better positioned to meet the evolving expectations of regulators and consumers alike.

Navigating the Legal Landscape Ahead

The “junk fee” debate underscores a broader trend in consumer protection law: transparency is no longer optional. Whether you’re managing compliance for a national brand or advising clients on pricing regulations, staying ahead of these evolving rules requires legal insight, strategic thinking, and industry awareness.

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