What You Need To Know
- Effective July 1, 2024, California's Consumer Legal Remedies Act (CLRA) will include another prohibited practice designed to prevent "drip pricing," which is the practice of revealing charges gradually throughout the buying process.
- "Drip pricing" was previously declared a deceptive and unfair practice that can trigger an enforcement action from the Federal Trade Commission. While it exists in many industries, it is most often seen in the e-commerce setting.
- Businesses that transact with California consumers should take
steps to remedy their use of "drip pricing" to avoid the
risk of consumer class action under the CLRA, including by:
- Ensuring that all advertised prices state the full price, inclusive of any fees.
- Revising comparative advertising claims to truthfully reflect how the full price compares to that of their competitor.
- Revising their discount claims (e.g., 50% off, etc.) to truthfully reflect the actual price discount.
- Additionally, businesses who previously listed additional fees on the checkout page should consider revising their checkout page to omit those line items altogether.
Beginning July 1, 2024, businesses that transact with California consumers may not apply additional fees or charges at checkout that were not disclosed in the advertised price (sometimes called "drip pricing"). Drip pricing is the practice of revealing charges gradually throughout the buying process. Regulators have raised concerns over drip pricing in certain industries, particularly among hotels, event ticket brokers, and online travel sites. California has now passed the strongest piece of legislation designed to prevent this practice.
Drip pricing exists in many industries and is most often seen in the e-commerce setting. Sellers may advertise one price and add on unavoidable charges before completing the transaction, sometimes styled as cleaning fees, service fees, or resort fees.
The California Law
California's Consumer Legal Remedies Act ("CLRA") prohibits a list of practices deemed to be deceptive or unfair. The CLRA is often used by consumer class action attorneys to bring putative class actions on behalf of California consumers, oftentimes seeking millions of dollars in damages and attorneys' fees, among other available remedies. Effective July 1, 2024, the CLRA will include another practice deemed to be unlawful: "advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than" taxes or fees imposed by the government or postage or carrier charges that will reasonably be incurred by the consumer to ship a physical good. In other words, companies that sell to California consumers and currently add resort fees, service charges, packaging charges, processing fees, etc., to the checkout price run a significant risk to their business if they do not change their practices.
FTC Previously Declared Drip Pricing Unlawful
The Federal Trade Commission (FTC) has previously declared drip pricing to be a form of "dark pattern." The FTC has explained that drip pricing is when a business will "advertise only part of a product's total price to lure in consumers, and [does] not mention other mandatory charges until late in the buying process." Drip pricing is a deceptive and unfair practice that can trigger an enforcement action from the FTC. Drip pricing constitutes a deceptive practice because the initial price listings shown to customers are inaccurate or incomplete until drip pricing reveals that the total offer to complete the transaction is greater. Drip pricing also constitutes an unfair practice because it increases search costs when comparing products and cognitive costs in determining the true price of a product. These costs discourage comparison shopping and increase prices. Even though the FTC previously declared drip pricing to be an unfair and deceptive business practice, California's revision to the CLRA is monumental because it now provides a lucrative mechanism for plaintiffs' class action lawyers to pursue claims against businesses using drip pricing.
Steps to Take Before July 1, 2024
There are limited exceptions to California's amendment to the CLRA. Companies that are separately regulated (such as broadband providers, financial entities, and car manufacturers) must comply with the laws in their industry, and the statute creates an exception for food delivery companies that may display the menu price and separately charge a fee for their delivery services.
However, businesses to which the amended CLRA applies have less than six months to remedy their use of drip pricing. This should include:
- Ensuring that all advertised prices state the full price, inclusive of any fees.
- Reviewing and, if necessary, revising their comparative advertising claims to truthfully reflect how the full price compares to that of their competitor.
- Reviewing and, if necessary, revising their discount claims (e.g., 50% off, etc.) to truthfully reflect the actual price discount.
In addition, businesses that previously listed additional fees on the checkout page should consider revising their checkout page to omit those line items altogether.
*Taylor Muentener contributed to this alert
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
