California's crackdown on junk fees: What businesses need to know

In May, the Federal Trade Commission (FTC) enacted a new rule targeting so-called "junk fees," including "bait-and-switch" tactics in the live-event ticketing and short-term lodging industries. California's own regime goes still further, heightening the risk of private lawsuits and consumer backlash.

The FTC Rule on Unfair or Deceptive Fees requires businesses in certain sectors to display the total price upfront, with only government-imposed taxes and shipping charges excluded. According to the FTC, the rule furthers President Donald Trump's Executive Order on Combating Unfair Practices in the Live Entertainment Market and represents common-sense consumer protection. Yet for many operators, it has meant costly system overhauls from ticketing platforms to hotel reservation engines.

This California mandate may sound simple, but in practice, businesses have long advertised base prices to highlight competitive entry-level pricing while transparently separating out service fees, convenience charges and operational surcharges. Now, businesses must re-engineer their pricing, advertising and point-of-sale systems -- or risk litigation.

Higher risks for California businesses

Unlike the FTC rule, with a narrow focus on live-event ticketing and short-term lodging, SB 478 sweeps across industries, from retail goods to personal services. Restaurants mounted the strongest opposition. California responded with SB 1524, carving out a narrow exemption that allows restaurants and food sellers to continue listing surcharges separately -- so long as they are clearly disclosed and explained on menus and signage.

For every other sector, the honest-pricing mandate remains intact. Gyms, salons, rideshare services, entertainment venues and others must now find ways to fold all costs into a single, all-in number without losing competitiveness.

Imagine a small fitness studio that offers a monthly membership for $100 and charges an annual maintenance fee of $75 that covers things like deep cleaning and equipment servicing. To the gym, this feels straightforward because the annual maintenance fee is clearly in the membership contract.

But a plaintiff could argue that because the fee is mandatory for every member, it should have been included in the advertised monthly rate from the outset. Suddenly, what the gym views as a transparent and standard industry practice is recast as an unlawful "drip fee," forcing the business to defend itself in costly litigation.

While FTC enforcement is limited to government action -- typically, regulatory fines or refunds -- state law empowers private lawsuits, statutory damages, attorney's fees and class actions. Even well-intentioned companies may find themselves defending against claims that their disclosures were not "conspicuous" enough or that a fee labeled optional was in fact mandatory, making the risk profile much higher for California businesses. For small operators without in-house counsel, that risk can feel overwhelming.

Technology creates confusion

Technology adds an additional layer of complexity. Many companies rely on third-party platforms like delivery apps or ticketing services that were launched before new regulations took effect -- and weren't designed with all-in pricing in mind. Updating those systems will take time, and California compliance may not be a priority for all developers. National businesses will have to decide whether to adopt California rules nationwide for the sake of uniformity or run dual systems, which could confuse customers.

Consumer expectations present another tension. California regulators emphasize that honest pricing provides clarity for shoppers. Yet businesses worry that all-in pricing may make them look artificially more expensive compared to competitors in other states who can still advertise a lower headline rate. A gym that used to promote a $30 monthly membership plus a $10 maintenance fee must now advertise a $40 membership. The price has not changed, but the optics have, placing compliant California businesses at a perceived disadvantage.

These concerns are not abstract. Early disputes are already surfacing in industries where margins are thin and surcharges common. Plaintiffs' attorneys are watching closely, encouraged by the broad remedies available under California law. The California Attorney General's office has signaled strong interest in enforcing the statute, but even without state action, the private right of action makes lawsuits all but inevitable.

Navigating compliance costs

While the FTC's Junk Fees Rule drew national attention, California's laws present the real compliance challenge. Its broad scope, limited exemptions and aggressive enforcement mechanisms mean that businesses in nearly every consumer-facing sector are under new scrutiny.

For businesses, the path forward is clear but costly. Every price display, from websites to in-store signage, should be reviewed if it hasn't been already. Contracts with vendors and third-party platforms may need to be renegotiated. Marketing teams will need to find ways to explain higher sticker prices to customers, and staff will need training to respond to customer questions about seemingly higher prices.

These may seem like one-time fixes, but in reality, they are part of an ongoing conversation about pricing. The question becomes whether businesses, particularly small and mid-sized enterprises, can keep pace with the demands of compliance without sacrificing competitiveness.