How CA's Service Fee Ban Will Affect Your Wallet

CALIFORNIA — From dinner bills to concert tickets and dinner deliveries, hidden fees have increasingly drawn the ire of consumers frustrated that the price they see is very often not the price they pay. But later this year, California is doing something about it when a law banning “junk fees” goes into effect.

Signed into law by Gov. Gavin Newsom in October, SB 478 will prohibit hidden fees, defined by state officials as fees in which a seller uses an artificially low advertised price to attract a customer, disclosing additional required fees in fine print or tacking on unavoidable charges later in the buying process.

It’s a familiar practice to anyone who’s ever ordered from Uber Eats or DoorDash, bought concert tickets online, or paid the dinner bill only to find a hefty “service fee” tacked on at the end. The mandatory fees often inflate the price of being able to attend an event and restaurant service charges of up to 20 percent mean a dish is much more expensive than the menu price suggests.

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Beginning July 1, when the law goes into effect, “the price Californians see will be the price they pay,” Attorney General Rob Bonta said in a statement at the time of the law’s passage.

But it remains to be seen how exactly the law will be enforced.

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Bonta’s office initially said the law “will not bar restaurants from charging service fees” if they are disclosed and not hidden from advertised prices, the San Francisco Chronicle reported.

More recently, the AG’s office said restaurants will still be able to include surcharges and other fees on the menu, but they must be included in menu prices from the outset, the Los Angeles Times reported.

That could mean your $45 steak will soon cost $52 if restaurants shift the hidden fee to the menu price. That’s if customers will go for it. Some industry groups worry the new law will make it hard for struggling restaurants to stay in business.

Bonta’s office is expected to issue guidelines clarifying what exactly the law prohibits in the coming months. But for now, the restaurant industry is preparing for a world without fees.

In recent years it’s become popular for restaurants and bars to tack on additional surcharges when a bill is calculated. So when a dish is listed on the menu as $20, a diner needs to consider that the real price actually includes an additional fee, often noted in small print at the bottom of the menu. Some of the fees, which restaurant owners say help cover healthcare costs and wages, may be optional. In such cases, a diner can request that the fee be taken off the bill.

Last year, a group of former servers at the popular Los Angeles restaurant Jon & Vinny’s filed a class-action lawsuit alleging that the company denied them tips due to diners’ confusion over an 18 percent service fee. The restaurant went on to change the language at the bottom of bills stipulating that the fee was not a tip.

Those types of fees often draw the ire of customers, including at Jon & Vinny’s, which drew spirited discussion on social media.

“It doesn’t seem fair to the diners,” one Reddit comment about the case reads. “So they pay 18% service fee and then the servers are asking for an additional 18 or 20 (or whatever) on top of that? That’s really expensive. If you raise prices to what it honestly costs to produce food and pay workers and pay the overhead, then restaurant dining will admittedly be really expensive. And maybe only a select few will be able to dine out, but maybe that’s the way it has to be.”

Indeed, restaurateur Caroline Styne told the LA Times that her Lucques Group of restaurants expects to raise prices as a result of the new state law. For example, a roast chicken dish at LA’s AOC, currently priced at $39, will likely rise to $49 when the new law kicks in.

Still, confusion remains.

San Francisco’s Golden Gate Restaurant Association has been on the forefront of lobbying state government to clarify how the law will impact restaurants given the little information provided by the state on how restaurants should proceed.

“A lot of people are reaching out for clarity,” Laurie Thomas, executive director of the association told the LA Times. “There’s a lot of frustration. It’s not going to drop the price of dining out. What it might do is close more restaurants. But maybe people don’t care about that anymore.”

At hotels, resort fees are among the required fees tacked on the advertised nightly price of a room. While SB 478 covers all industries, another companion bill, AB 537, is focused specifically on lodging.

“The two of them combined say that any mandatory fee has to be displayed at the time of reservation,” Pete Hillan, a spokesman for the California Hotel and Lodging Association, told Nerd Wallet. “Consumers are going to have full transparency on all mandatory fees.”

The law will affect food delivery as well.

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Apps such as Uber Eats and DoorDash will have to list the price for delivery costs upfront. That will mean no more advertising delivery for $1.49 with a $10 service fee on the backend. They won’t be able to add the cost to the menu item either. Participating restaurants will set their menu prices, and the app industry will be required to bake their costs and profits into the advertised delivery fee.

On the national level, the Biden administration and the Federal Trade Commission last year announced new proposed regulations that would prohibit “omitting” and “misrepresenting” fees from the total cost of goods. The agency recently stopped collecting public comment on the proposal and has yet to make a formal decision on the regulations.

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