A new California law takes aim at junk fees, those hidden charges that mask the true cost of your loan or purchase. That’s good news for most consumers in the Golden State but not for all. It seems that auto dealers were able to get their contracts carved out of the law, which is unfortunate since car purchases and leases are among the costliest of consumer goods, and their contracts are ripe for hidden fees.

Junk Fees and SB478

When a product is advertised at a price that is less than the actual price the consumer will have to pay, the consumer rightfully feels tricked. They made their purchase based in part on the price advertised, only to hear about “mandatory fees” added on when it’s time to check out. This practice, known as “drip pricing,” is bad enough when the good is a concert ticket or hotel room; when a vehicle or other major purchase is at stake, these hidden fees – or “junk fees” as they are called – can run into the hundreds or thousands of dollars.

While the federal government has been busy issuing “guidance” and “advisory opinions” about junk fees, California has already done something about it. Senate Bill 478 was signed into law on October 7, 2023, with an effective date of July 1, 2024. SB478 amends California Civil Code section 1770, part of the Consumers Legal Remedies Act, or CLRA for short.

The CLRA prohibits “unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.” The law allows for individual or class action lawsuits where plaintiffs can recover the actual damages they suffered or at least $1,000 in statutory damages per violation, along with other remedies such as injunctions, restitution, punitive damages, and recovery of attorney fees.

To recover damages under the CLRA, a potential plaintiff must first notify the business of the alleged violation and give the company 30 days to correct the error before filing suit.

The CLRA includes a long list of prohibited activities such as false advertising and other activities that amount to unfair or deceptive acts or practices or unlawful methods of competition. SB478 adds junk fees to that long list by declaring it unlawful to advertise, display, or offer a price for a good or service without including all mandatory fees or charges other than taxes or fees imposed by the government.

Junk Fees and Auto Dealers

“Today, California is eliminating hidden fees,” said California Attorney General Rob Bonta in a press release issued on the day the bill was signed into law. “The days of bait-and-switch pricing practices are over,” said Senator Nancy Skinner, who co-authored the legislation. Unfortunately, SB478 is not as comprehensive as it could be and includes carveouts for a few types of businesses, including auto dealers.

Currently, auto dealerships must include all mandatory fees and other charges when listing the price of a vehicle. Taxes and shipping fees, however, are excepted from this requirement. Similarly, any offer to enter into a lease contract must state “Plus tax and license” or include a substantially similar statement if taxes, license fees and registration fees aren’t included in the lease payments.

However, the exact amounts of registration and licensing fees do not have to be disclosed. And that’s not all. Other costs that can lawfully be excluded from the advertised price of a motor vehicle include the California tire fee, up to $50 in emission testing charges, actual fees charged for certificates, finance charges, and any dealer document processing charge or charge to electronically register or transfer the vehicle. These charges sound a lot like junk fees, and they probably would be prohibited under SB 478, except that motor vehicle dealerships were granted an exception from the law and may continue to exclude these fees from the advertised price of a vehicle, including when pretending like the manufacturer’s suggested retail price (MSRP) is the price the customer will end up paying.

This carveout for automobile dealers and manufacturers was not in the bill as introduced, so what happened? At a Senate Judiciary Committee hearing on the bill in April 2023, the California New Car Dealers Association (CNCDA) submitted its “oppose-unless-amended” position, complaining that automotive sales and advertising were already highly regulated under current California law. The lobbying group wrote, “CNCDA respectfully requests car dealers that are appropriately licensed and following current law in California be exempted from the expanded legal remedies in SB 478” to avoid being “exposed to lawsuits under the California Consumer Legal Remedies Act.” The law was duly amended and passed with an exemption for dealerships.

The bill, as enacted, granted carveouts for other industries, including rental car companies, property managers, and food delivery companies.