California's Junk Fee Ban Begins, but Restaurants Get a Pass

Companies will have to disclose the full cost of everything from hotel rooms to concert tickets upfront starting July 1 when a new state law takes effect banning so-called junk fees — those hidden costs that get tacked onto a bill right before you pay.

However, the restaurant industry won’t be included after some last-minute political wrangling in Sacramento that led to an eleventh-hour exemption.

The movement to ban surprise costs has gained momentum in recent years, with President Joe Biden making the ban on these fees a centerpiece of his strategy to tackle rising consumer prices. The president said the hidden charges cost Americans some $90 billion each year, but many of Biden’s efforts have been slowed or stymied. Airlines and banks are suing, and his legislation to ban junk fees altogether has stalled in the Republican-led House.

So, states are stepping in. California led the way with SB 478, which was signed into law last year and goes into effect July 1. It requires transparency in pricing in nearly all industries except for airlines, which are governed by federal law. Minnesota’s governor also signed a law this spring banning junk fees. And lawmakers in Connecticut and New York are considering similar legislation.

State Sen. Bill Dodd (D-Napa) was one of the law’s authors. He said the issue is personal to him.

“A year ago, I took my three adult sons to the playoff game for the Warriors and the Kings,” he said. “And it was just absolutely — I mean, they were pretty expensive tickets — but nevertheless, the amount that came as the fee, somewhere around $700 or $800, just absolutely blew my mind.”

Dodd’s experience is not unusual, according to Chuck Bell, an advocate at Consumer Reports.

“People deserve to know upfront how much something is going to cost,” he said. “It doesn’t necessarily save them money. It doesn’t require any business to lower their prices just to have transparent pricing. But it’s something that’s fair and gives the consumer peace of mind and economic security.”

Still, businesses of all kinds pushed back when lawmakers were considering the bill, arguing that false advertising is already banned in California and that in many industries, prices are already heavily regulated. One main point of contention for the California Chamber of Commerce and others was the provision allowing private citizens — not just the government — to sue if they encounter junk fees.

But the restaurant industry also lobbied lawmakers for a carveout in recent weeks, saying they didn’t know when the legislation was being debated last year that it included menu charges.

San Francisco restaurant owner Laurie Thomas, who is also the executive director of the Golden Gate Restaurant Association, said banning restaurants from adding mandatory fees — including automatic gratuity — would force them to include those extra costs in menu prices or pay employees less.

“You can raise the prices. But then we anticipate consumers will do what my husband and I do, like, ‘Oh my God, that was expensive. We can’t do that twice a week anymore,’” she said.

Thomas and other industry advocates argue that diners react better to a surcharge at the end of the meal than to higher prices for things like burgers and salads.

Not everyone agrees. One popular San Francisco restaurant has taken the opposite approach, declaring itself tip-free and noting at the top of its menu that all employees receive a living wage and full benefits, including paid parental and sick leave, as well as a 401(k) with an employer match.

The restaurant is Zazie, a French bistro in Cole Valley known for its brunch menu. Co-owner Megan Cornelius said the unusual pricing structure creates loyalty for both employees and diners.

“I think we really enjoy it just being transparent. Like, if you see, that’s what you’re going to pay, you’re going to pay that plus tax, but that’s it,” she said.

Zazie regular Ariana Wilson, who was having brunch on Zazie’s patio recently, said she prefers knowing the full price of everything on the menu up front, rather than having to do math in her head while she orders — or getting a surprise at the end of the meal. And she appreciates something else, too.

“I think part of why my family is so supportive of this business is because of how they take care of their employees, and I think the transparency at the top of the menu is nice to know what it’s going towards,” she said.

However, Zazie’s unique structure will likely remain an exception. After restaurants around the state balked at being included in the junk fee ban, state lawmakers took action.

Legislation authored by Senator Dodd making clear that restaurants can tack on fees, as long as they’re clearly disclosed ahead of time, was approved last week — just in time for the restaurant industry to avoid the broader junk fee ban.