California Bans Junk Fees, Anticipating Federal Efforts

California will ban junk fees beginning July 1, after the state’s governor signed a bill into law on Saturday (Oct. 7).

This move comes in response to growing concerns about the excessive charges that often far exceed the actual cost of the service provided, and it mirrors similar efforts being made on the federal level, CBS News reported Monday (Oct. 9).

The Biden administration has also expressed its commitment to cracking down on these fees, and lawmakers in Congress have introduced a bill to address the issue, according to the report.

Americans pay at least $29 billion annually in junk fees, the report said. Junk fees encompass a wide range of charges, including service fees added to food delivery, overdraft fees on bank accounts and surcharges on sporting event tickets. These fees are known for increasing the cost of services beyond what consumers anticipated. The practice has led to a lack of transparency, making it difficult for consumers to make informed purchasing decisions.

The new California law targets a specific pricing practice called drip pricing, per the report. This practice involves companies advertising only a portion of the actual cost of a product or service, misleading consumers about the total price they will pay.

While the law does not prohibit companies from setting their prices, it regulates how they can advertise or display the cost. By banning drip pricing, California aims to ensure that businesses provide complete and transparent pricing information upfront, enabling consumers to make informed choices.

California’s ban on junk fees aligns with the Biden administration’s plan to addressing this issue, the report said. President Joe Biden has used two State of the Union addresses to decry junk fees and has pledged to support federal lawmakers in passing legislation to eliminate them. U.S. Sens. Richard Blumenthal and Sheldon Whitehouse have introduced the Junk Fee Prevention Act, which specifically targets fees charged by airlines and resort destinations. Additionally, the Federal Trade Commission (FTC) is considering whether or not to establish a rule against junk fees.

In July, the Consumer Financial Protection Bureau (CFPB) ordered Bank of America to pay more than $250 million in penalties and restitution to companies, charging the bank with, among other things, “systematically double-dipping” on fees imposed on customers with insufficient funds. A Bank of America spokesperson told PYMNTS at the time that the firm no longer charges the fees addressed by the CFPB.