CHARLOTTE, North Carolina — Two new California state laws targeting hidden fees — or so-called "junk fees" — at hotels, vacation rentals, event ticket sellers and food delivery services officially took effect on Monday. Though these are laws passed in California, they will have an immediate impact that reaches beyond the state.

The legislation could serve as a launching point for other states, or the U.S. as a whole, to pass similar laws in the near future.

Speaking during the "Headlines and Headwinds: Navigating the Legal and Regulatory Currents" general session at the 2024 HSMAI Commercial Strategy Conference, Greg Duff, principal and chair of hospitality, travel and tourism practice at Foster Garvey PC, broke down how these laws came to be and what they mean for hoteliers across the U.S.

California Senate Bill No. 478 includes the Unfair Competition Law, which made "various unfair competition practices unlawful," including any deceptive or misleading advertising. This includes full disclosure of mandatory hotel fees in the booking process.

It also includes the Consumers Legal Remedies Act, which made "certain unfair methods of competition" and "certain unfair or deceptive acts or practices" intended to result in the sale of goods or services to a consumer illegal.

Duff said of the two laws passed, the one focused on consumer transactions is "far more important."

Since the law is directed toward consumer transactions rather than hotel transactions, it means it applies to Californian consumers even if they're looking at a property online outside the state.

"So what does that mean? If you know Californians that are looking at your property online, if you have a history of Californians staying at your property, if you have reason to believe that guests from California frequent your property, the rule likely applies to you as well," he said.

Again keying in on the consumer aspect of the legislation, Duff said it applies to all consumer transactions, not just typical resort fees. This includes disclosing mandatory hotel fees, mandatory service charges for group sales, mandatory fees for spa gratuities and food-and-beverage service charges up front in the booking process.

Since this law applies to consumer transactions, hotels may need to have two sets of terms and conditions for group travel — one that is used for social events such as a wedding or family reunions and one that is used for non-consumer corporate agreements and commercial transactions, he said.

For hoteliers worried about compliance with the law, there's a bit of a cushion baked in: When a consumer feels the law has been violated, they must then make a claim. If someone intends to make a claim, they're required to give the property a 30-day notice and an opportunity to adjust to be in accordance.

While California's legislation is visible as the first to go into effect, other states are considering similar moves. Minnesota passed its version in May, set to go into effect in 2025, and the Federal Trade Commission is working through its own possible national proposal.

While the practice of resort fees at hotels has been around for years, the Federal Trade Commission really took notice beginning in 2012.

That year, the Federal Trade Commission issued a warning to hotel operators addressing "drip pricing." The FTC defined drip pricing as when only part of a product's price is advertised and other charges are revealed as a consumer goes through the buying process. Today those fees are typically called hidden fees, representing unavoidable charges a seller discloses late in the sale process.

“Consumers are entitled to know in advance the total cost of their hotel stays,” former FTC Chairman Jon Leibowitz said at the time of the 2012 decision. “So-called ‘drip pricing’ charges, sometimes portrayed as ‘convenience’ or ‘service’ fees, are anything but convenient, and businesses that hide them are doing a huge disservice to American consumers.”

The FTC called on hotels to separate tax and fee charges, and fees had to have some relationship to the services or amenities consumers could receive, Duff said.

He said the current era of hidden fee regulations started in 2021, though, with the settlement agreement reached between Marriott International and the State of Pennsylvania.

Josh Shapiro, then Pennsylvania's attorney general and the current governor of the state, investigated Marriott for drip pricing, arguing the company was in violation of the state's Consumer Protection Law.

"The two key principles that came from that settlement agreement were the notion of total price ... and the fact that sort order on websites needed to be inclusive of total price. In other words, you couldn't break out fees, you had to display the total price," Duff said.

This in turn led to investigations and litigation brought by other state attorneys general targeting hoteliers, culminating in the FTC creating a national standard to regulate these fees in late 2023, he said.

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