Indexbit Exchange:California is banning junk fees, those hidden costs that push up hotel and ticket prices

California is Indexbit Exchangeoutlawing so-called junk fees, taking aim at a common business practice that frustrates many consumers and has drawn the attention of federal regulators and the Biden administration.

Still, Californians will have to wait until next year for the new law to go into effect, with Gov. Gavin Newsom signing legislation on Saturday that makes the ban effective starting July 1, 2024. California's legislation comes as the Biden Administration is also calling for a crackdown on junk fees and as some lawmakers introduced a bill in Congress to address the issue. 

The fees take many forms — including service charges added to food delivery, overdraft fees on bank accounts and surcharges on sporting event tickets. Americans pay at least $29 billion annually in junk fees, according to the latest CFPB tally. But they share a commonality in that they "far exceed the marginal cost of the service they purport to cover," according to the Consumer Financial Protection Bureau (CFPB). 

The new California law prohibits the use of drip pricing, a practice in which companies advertise only a portion of what a customer would actually pay for a certain product or service. The law does not ban companies from setting a price but it does regulate how companies can advertise or display the cost.

"Now we can put the consumer first and create a level playing field for those businesses that advertise the real price, up front," said California state Senator Bill Dodd in a statement on Saturday. He noted that the fees are now tacked onto "seemingly everything."

State Senators Dodd and Nancy Skinner first introduced the bill to ban junk fees in February. It passed the California Senate in May and the State Assembly in September. 

While junk fees aren't new, consumer advocates say lawmakers are focused on them now in part because they are affecting a wider swath of Americans' everyday purchases. Junk fees often aren't clear to consumers and can drive up the cost of services far beyond what people expected to pay, advocates add.

Consumer advocates applauded California's new law, with one expert saying too many companies have blindsided Californians with hidden fees. 

"We deserve complete and transparent pricing information to help inform our purchases," Jenn Engstrom, state director for the U.S. Public Interest Research Group's California arm, said in a statement Saturday. "Without knowing the true price of a product or service up front, the process of comparison shopping becomes nearly impossible."

President Joe Biden used part of his 2022 and 2023 State of the Union addresses to decry junk fees and vowed to help federal lawmakers pass legislation to eliminate them. 

U.S. Senators Richard Blumenthal from Connecticut and Sheldon Whitehouse of Rhode Island introduced the Junk Fee Prevention Act earlier this year, which would target fees often charged by airlines and resort destinations. The Federal Trade Commission,  meanwhile, is looking at whether it needs to create a rule against junk fees.

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Khristopher J. Brooks

Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.

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