But now, some states may soon have new tools to combat potential unfair and deceptive practices throughout a variety of industries. With the legislative season coming to a close, we have your rundown of the spread of “hidden fees” regulation including California and beyond. So, if a vacation from hidden resort fees is all you ever wanted – and a trip to see Carhenge or the Alamo (attractions in states where attorneys general have been active in enforcement) has already been checked off your bucket list – here are your ideal places to get away:

California: The Golden State’s newly minted Consumers Legal Remedies Act (SB 478) amendment will take effect on July 1, 2024, specifically making it unlawful for companies across virtually all industries to advertise or display a price without including all mandatory fees and charges, save taxes and fees imposed by the government (though the bill states that “drip pricing” is already prohibited). Click here and here for more details. California is such a lovely place, and if you are traveling on a dark desert highway looking for somewhere to rest your head, you should be aware the California Resort Fee Bill (AB 537) contains similar measures even more specific to the short-term lodging industry (effective July 1, 2024).

When all of this raises your appetite, you can dig into the legal back-and-forth between lawmakers and California’s food and beverage industry. In response to questions about how SB 478 would apply to bars and restaurants, lawmakers recently introduced an urgency measure (SB 1542) that would make clear that restaurants may still display mandatory gratuities, services charges, and other fees separately so long as they are clearly displayed on the menu and don’t come as a post-dessert surprise. Interestingly, the legislature specifically noted that this is intended as a clarification, not a change in existing law. As of today, this hasn’t passed yet, but we will be sure to provide updates.

Massachusetts: If the Cape is more your style, you may want to pay attention to Massachusetts AG Andrea Campbell’s proposal of a new slate of regulations that would require businesses to “clearly disclose” the total price of goods and services. Like in California, this would apply across industries. If enacted, non-compliance would constitute an unfair and deceptive trade practice. Read our full coverage here.

Minnesota: If you have the land of 10,000 lakes in mind, the state recently passed HF3438 requiring that an advertised or displayed price include all mandatory fees and surcharges (not including taxes), including additional clarity on “mandatory fees” compared to California’s statute. The bill provides exemptions or specifications for several industries, including specifically requiring that hotels (among other food or beverage establishments) must clearly and conspicuously disclose the percentage of any automatic or mandatory gratuities that consumers will be charged. The law will take effect January 1, 2025.

The Near Hits: As state lawmakers leave for their own summer vacations, some notable legislation got left on the drawing board. For instance, in the Land of Lincoln, the state’s proposed Junk Fee Ban Act gained momentum when it easily passed the Illinois House in a 71-35 vote but then never made it to the Senate floor. We saw similar attempts in Connecticut and New York. While these bills didn’t cross the finish line this year, we expect many states will take on this issue in the next legislative season.

Against this backdrop of state activity, the FTC is in the midst of rulemaking process that would ban hidden fees and further regulate the types of fees companies can charge. Revisit our coverage on that here and here. Also in Washington, the House of Representatives just passed the No Hidden Fees Act. If made law, the Act would require hotels and other short-term rentals to clearly display mandatory fees.

Clearly, multiple levels of government are “checking out” hidden fees. Even President Biden denounced “surprise” fees in his 2023 State of the Union Address.

Of Importance…

• Updates to regulation are occurring but general state consumer laws still apply. While some states may be setting specific standards in this area, remember state consumer laws, which outlaw deceptive acts and practices (and in many states, unfair acts and practices), still apply. Therefore, just because a state doesn’t specifically spell-out fees requirements in its statutes or regulations, it does not mean fees disclosures comply with states’ interpretations of the law. (For example, the AG’s office in Washington DC issued guidance on the types of restaurant fees that may violate existing law.)
• Some fees face greater scrutiny than others. AGs have sought out so-called “bogus” fees they feel offer consumers little value. Companies should be mindful of what the fees actually deliver for consumers and convey the value accurately and clearly.
• Messaging and disclosures are critical. The crux of the states’ take on drip pricing is a failure to disclose certain fees in a timely manner (if at all), and AGs have taken issue with tactics that do not clearly describe when a fee is mandatory or not.

We expect to see more on “junk fees” in the weeks and months ahead. Subscribe to our monthly newsletter AG Chronicles and Ad Law Access blog to stay up-to-date.

Advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than either of the following: (i) Taxes or fees imposed by a government on the transaction; [or] (ii) Postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

The AG notes that the law is “intended to specifically prohibit drip pricing, which involves advertising a price that is less than the actual price that a consumer will have to pay for a good or service” and that doing so “is a form of deceptive advertising that also violates existing state and federal law.” Although “drip pricing” hasn’t been a big focus for the AG in the past, that may soon change.

Here’s a summary of some of the more notable answers.

Scope of the Law

• The law applies to the sale or lease of most consumer goods and services. It doesn’t apply to the purchase or lease of goods or services for commercial use, or to a small number of specified transactions and industries that are subject to other pricing laws.
• The law does not limit what types of (non-deceptive) fees business can impose or how much they can charge. Instead, the focus is on transparency. As the new FAQs document states: “Put simply, the price a Californian sees should be the price they pay.”

What Must be Included and What Can be Excluded

• Except as stated below, companies must include all mandatory fees or charges in the advertised price. “Mandatory fees or charges” is not expressly defined in the statute or FAQs.
• The advertised price does not need to include taxes or government imposed fees. Nor does it need to include reasonable third-party shipping costs. It does, however, have to include any handling charges imposed by the company.
• Charges used to pay business costs, even if costs were caused by government requirements (such as recouping salary increases due to city ordinances), must be included in the overall price, although as disclosed below, they need not be itemized.
• The advertised price doesn’t have to include fees for optional services, features, or gratuities. Similarly, because fees that are contingent on certain later conduct by a consumer (such as late fees) are not mandatory, they do not need to be included in the advertised price.

Separate Disclosure of Fees

• The document includes three questions asking essentially the same thing – whether a company can advertise a “base price” and separately disclose any mandatory fees that will apply. The answer to each question is exactly the same: “No. The price listed to the consumer must be the full price that the consumer is required to pay.”
• Companies can, however, separately list fees and mandatory charges, as long as those are included in the advertised price.

Restaurants and Food Delivery

• Food delivery platforms are subject to special requirements under another new law, and the “hidden fees” law does not change those requirements. However, when these platforms advertise the price of the delivery service that they provide, they must advertise “the full, all-in price of the delivery service.”
• Fees for the delivery of food ordered directly from a restaurant do not need to be included in the advertised price of the food “because those fees are for the separate service of delivery.” Again, the price of delivery must be “the full, all-in price of the delivery service.” The AG here appears to be creating a distinction between delivery fees, which it says are not “mandatory fees” because they are for a separate service, and “service fees” and “gratuity payments that are not voluntary” that are considered mandatory and thus need to be included in the advertised price.
• Notably, in response to many questions from the restaurant industry, the AG writes: “There are many factors that we consider when making enforcement decisions, but we do not expect that our initial enforcement efforts will focus on existing fees that are paid directly and entirely by a restaurant to its workers, such as an automatic gratuity. However, businesses may be liable in private actions.”

Other Provisions

• The AG clarifies that business can offer discounts and coupons without violating the law. It’s OK to advertise a price that is higher than consumers will have to pay. “The law just prohibits advertising a price that is less than what the customer will have to pay for a good or service.”
• The AG mentions a scenario in which a business may not know the entire price at the start of a transaction and states: “Businesses that do not know how much they will charge a customer at the beginning of a transaction should wait to display a price until they know how much they will charge.” For some companies, this is going to create a significant challenge.

These answers provide clarity in many areas (even if they aren’t the answers companies were looking for). However, although there are many cases in which compliance may be relatively straightforward, there are many cases that are not as “simple” as the AG’s comments suggest. Many companies will have to make difficult choices based on their risk tolerance and pay attention to enforcement trends. But in any risk calculation businesses should keep in mind that State AGs across the country – along with the FTC and CFPB – are already pursuing “hidden fees” either through proposed rules or statutes (click here and here, for example), or through enforcement of their existing UDAP laws.

Advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than either of the following: (i) Taxes or fees imposed by a government on the transaction; [or] (ii) Postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

When the law was enacted, California AG Rob Bonta boasted that ​“California now has the most effective piece of legislation in the nation to tackle this problem. The price Californians see will be the price they pay.”

Like many other industries, restaurants have struggled with ways to comply with the law. Some in the industry speculated that the law may just require companies to be transparent about their fees. In a message to the San Francisco Chronicle last week, a California Department of Justice spokesperson took a different position:

SB 478 applies to restaurants, just like it applies to businesses across California. The law is about making sure consumers know what they are going to pay and requires that the posted price include the full amount that a consumer must pay for that good or service.

This fits with what we heard from California in November. In other words, the DOJ thinks it’s not enough to clearly disclose fees – they must be included in the posted price. (Note, though, that the law includes exceptions for “food delivery platforms.”) Although that may be simple in many instances, it’s not always the case. For example, companies in many industries are struggling with how they should display prices in instances in which the fees may vary based on various factors.

There are rumors that the state will provide more clarity – perhaps in the form of FAQs – but that hasn’t been confirmed. If the state is planning to do so, it would be helpful if they did that quickly. With less than two months to go before the law comes into effect, companies have little time to get things right.

The FTC is in the midst of a months-long rulemaking targeting “unfair or deceptive fees” that would fundamentally alter the way businesses can advertise their prices to consumers. Recently, a bipartisan coalition of 19 state AGs (led by General Michelle Henry of Pennsylvania and General Josh Stein of North Carolina) filed a comment letter supporting the FTC’s efforts.

What the Letter Did (and Did Not) Say

We covered the rulemaking in detail in a prior post. Here is a brief refresher: The FTC’s proposed rule would require that businesses “clearly and conspicuously” display the “total price” of goods and services and disclose the “nature and purpose” of other charges a consumer might see at check-out.

The AGs celebrated the FTC’s “straightforward approach” and commented that hidden fees are a problem “in many different types of industries.” The state enforcers enumerated several recent actions they have taken in their own jurisdictions, including targeting fees in financial services, hotels, live-event tickets, rental housing, auto rentals, and television and cable services. Turning to the proposed rule, the AGs specifically supported:

• The proposed ban on “hidden fees,” arguing that the fees force consumers to waste “valuable leisure time” researching actual prices and put “truthful and straightforward” businesses at a competitive disadvantage.
• The proposed ban on “misleading fees,” pointing to past comments from consumers claiming they were left wondering what they were actually paying for and confused over whether charges were government mandated or not.
• A provision that would ensure the proposed rule creates a floor rather than a ceiling, meaning jurisdictions could enact more stringent protections.

Notably, the group did not weigh in on a blanket ban on “excessive fees” or suggest any industry specific exceptions. Businesses operating in the signatory states and beyond should take note of how AGs may be interpreting their existing UDAP statutes to prohibit hidden or misleading fees across the marketplace.

The Junk Fee Flood

While this is the latest sign that junk fees are becoming a beacon for enforcers, it is hardly the first. Connecticut recently passed a law requiring ticket sellers to disclose fees up-front, California recently banned hidden fees, and Massachusetts has issued draft regulations similarly targeting fees. Not to be outdone, despite its incomplete rulemaking the FTC just announced a settlement with student debt relief companies after alleging they charged some $8.8 million in junk fees associated with debt relief services that did not exist.

Looking Forward

The FTC’s public comment period has ended. We will keep you up-to-date on rule developments and how state AGs continue to push against “junk fees.”

Such was the experience of a woman who purchased a ticket to the Museum of Sex in New York City. She was tantalized by the price of a ticket starting at $36. She clicked through the purchase flow, avoiding the temptations of add-ons such as Love High Sex Gummies (and other items we won’t mention here), and arrived with bated breath at the checkout page, where the climax was ruined by the presence of a $4 service charge, buried under the covers of “Taxes & Fees.”

We’ve all been there (or somewhere like it). An encounter that starts off with promise and excitement ends up in disappointment and dashed expectations. Our woman didn’t take this lying down, though – she filed a lawsuit against the Museum alleging that the act of teasing her with the false promise of a low price violates New York’s Arts & Cultural Affairs Law.

That law states that entertainment venues and ticket sellers must clearly disclose the total cost of a ticket, including any fees, as well as the portion of the ticket price that represents fees. “Such disclosure of the total cost and fees shall be displayed in the ticket listing prior to the ticket being selected for purchase” and, except for reasonable delivery fees, “the price of the ticket shall not increase during the purchase process.”

This case is part of a larger trend of lawsuits and regulatory investigations involving “dark patterns” and “hidden fees.” While we recognize that different people are turned on by different things, we’re fairly confident that no one finds hidden fees to be sexy. We encourage you to look through your purchase flow to ensure you’re revealing all of goods – or bads, as the case may be – up front. When it comes to prices, you don’t want to leave anything to the imagination.

Massachusetts shuttered indoor dining in response to COVID, which triggered the passing of legislation intended to reduce the economic burden on restaurants, which supplemented the state’s pre-existing price-gouging statute. This temporary statute (in place from January to June of 2021) prohibited third-party delivery platforms like Grubhub from charging restaurants with less than 25 locations in Massachusetts more than 15% of an order’s purchase price in fees (delivery fee cap). Pursuant to the statute, a violation of the delivery fee cap was an unfair and deceptive trade practice in violation of the state’s UDAP law.

The temporary statute also prohibited delivery platforms from reducing driver compensation. In drafting this portion of the statute, legislators may have considered the D.C. AG’s settlement in 2020. There, DoorDash paid $2.5 million to resolve allegations that it had mislead consumers to believe that their tips would boost worker pay when, in reality, the tips went to the company to offset the compensation it already agreed to pay its drivers.

As a result of the temporary statute, Grubhub reduced its commission to 15% of the order price but continued to charge a credit card processing fee of about 3% on all noncash orders. The state AG’s office filed suit in July of 2021, alleging this additional cost brought Grubhub’s total fee above the legal cap. In March of 2023, Massachusetts won summary judgment when the court rejected Grubhub’s argument that the processing charge was a pass-through fee outside of the statutory limit and its constitutional challenges, especially in light of the COVID-19 pandemic.

Continued Crackdown on Junk Fees and Price Gouging

This is hardly the delivery behemoth’s first brush with state enforcement. Attorneys General in Washington, D.C. and Pennsylvania have also targeted Grubhub over its fees.

In December, Grubhub agreed to pay $3.5 million to settle claims that it violated D.C. consumer protection laws including more COVID-19 related claims. As you may recall, the AG’s office alleged Grubhub charged hidden and deceptive fees by advertising one “delivery fee” upfront but then charging a “service fee” and “small order fee” (where applicable) only at the final stage of checkout. Among several other counts, the office also alleged that Grubhub ran a promotion falsely claiming to help struggling restaurants during the pandemic when, in reality, it passed most of the costs of discounted prices along to those restaurants and charged its full commission.

In Pennsylvania in 2022, the company agreed to add new fee disclosures to its platforms and donate $125,000 to Pennsylvania food banks in response to a lawsuit. Among other claims, the AG’s office alleged that Grubhub did not clearly disclose to consumers that prices were sometimes higher through the platform than at the restaurant. We discussed that in detail here.

Takeaways

More broadly, “junk fees" and price gouging continue to be a key enforcement area for state and federal enforcers. We’ve covered Massachusetts’ draft regulations to prohibit junk fees (here), California’s recent junk fee statute (here), and the FTC’s proposed junk fee rule (here).

Businesses shouldn’t forget that price gouging statutes didn’t begin or end with the pandemic – several states have warned recently about price gouging violations in light of recent winter storms, for instance. Some states take the position that their statutes are triggered by general terms such as an abnormal market disruption, so they may not require a state of emergency or specific disaster declaration. And be aware that definitions or interpretations of excessive or exorbitant pricing vary.

Reyneri discussed basic concepts of advertising law, highlighting the recent endorsement guides amendments which were discussed in more detail in a later panel. He also pointed to recent FTC developments such as its use of notice of penalty offense authority in an effort to obtain monetary relief post-AMG. Reyneri reminded the audience that the .com Disclosures are in the process of being updated, and also highlighted the rulemaking for Junk Fees.

VanGelderen started her presentation by noting that marketers are increasingly spending money on behavioral research, which she explains shows that people use decision-making shortcuts when overloaded with information, have time pressures, or are making trivial decisions relying on heuristics to simplify decisions. She said that people choose the first product that minimally meets needs. VanGelderen then went on to describe some of their office’s positions on recent advertising cases.

Senate Bill 478 (Junk Fees)

Likely the hottest topic discussed during the panel, VanGelderen provided some insight into how the California AG’s office views the new junk fee law, which we covered here. She reminded the audience that the legislative intent was to prohibit drip pricing and that bait and switch and unbundling of prices was already deceptive under the AG’s previous authority. The purpose of the new law was to prevent ambiguity.

VanGelderen provided several examples of fees that California would find deceptive:

• A 4% sustainability fee on all transactions would be deceptive if disclosed separately from the rest of the price.
• Advertising a $0 delivery fee when there is actually a $3 service charge that helps operations would also be deceptive where the service itself was delivery.
• A 5% surcharge to help pay for increased costs due to a government mandate (she framed as a “protest fee”) would also be deceptive if not included with the total price.

In a question by AG staff from Illinois, it was mentioned that a similar junk fee law may be considered in that state as well, so clearly deceptive fees continue to be on the minds of more than just California.

Labeling

VanGelderen discussed multiple recent labeling cases and the office’s view of the rulings:

• The California AG’s office wrote an amicus brief in a 2018 case on appeal related to the vitamin brand “One a Day,” but which included a recommended dosage of two gummies for certain products. VanGelderen agreed with the court’s ruling that this was an issue because reasonable consumers were unlikely to review all the details on the bottle before purchasing.

• VanGelderen highlighted another case, in which white baking chips were shown on a bag; even though the bag didn’t say the chips were made of white chocolate, VanGelderen’s and the appellate court’s view were that this was misleading in part because consumers don’t look at ingredient labels.

• Finally, she described a case where Manuka honey was labeled as 100% despite only being 60-70% Manuka honey. The court found the label permissible in part because FDA guidelines allowed it and that consumers would understand it is impossible to make a honey 100% derived from one source. But VanGelderen said she disagreed with this outcome -- though she admitted it is currently the law, she alluded that it may have come out differently in state court.

Nontraditional Marketing

VanGelderen described some of the more recent actions by the California AG’s office that shed light on the office’s views of advertising claims. For instance, in People v. Johnson & Johnson, et al., she described the company’s surgical mesh “surround sound marketing campaign” to create demand from patients. California considered these education awareness events and brochures to be marketing materials because the intent was to sell mesh, and alleged the company downplayed or concealed serious health risks obtaining a $362 million verdict.

In People v. Ashford et al., California said that using telemarketers branded as admission counselors was deceptive where the sales environment incentivized representatives to mislead consumers (potential students) about the costs of attendance, ability to obtain certain jobs, and transferability of credits.

Bottom line: To stay in line with California (and many other states) positions on advertising, remember:

• Consumers may not look at the entire label – so consider accordingly.
• Advertising can take many forms, including consumer education.
• Don’t mislead customers about existence of fees, or what a fee is for.

California Senate Bill 478, which was signed over the weekend and goes into effect on July 1, 2024, will generally require under the Consumers Legal Remedies Act that companies include all mandatory fees when they advertise prices. The law states that the following practices are unlawful:

• Advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than either of the following: (i) Taxes or fees imposed by a government on the transaction; [or] (ii) Postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

The law has a few narrow exceptions. For example, it wouldn’t be unlawful for a food delivery company to list the menu prices of food items without factoring in its own fees. And companies in other separately-regulated industries – such as broadband providers, financial entities, and car manufacturers and rental and manufacturer companies – will not be deemed to be in violation of this law, if they comply with other laws in their industry specifying how fees must be disclosed.

Notably, the preamble to the bill takes the position that drip pricing – or presenting part of a price up front and presenting fees later – was a form of “bait and switch advertising” and already “prohibited by existing statutes.” That echoes the position that AGs across the country have already taken in various cases. Click here, for example. AG Bonta’s press release highlights several industries they allege specifically as having used hidden fees, such as lodging, ticketing, and food delivery.

We expect that efforts to push companies to disclose mandatory fees up-front will continue to intensify at both the federal and state levels.

The class action complaint focused on two types of practices:

• False Sense of Urgency: The plaintiffs alleged that SelectBlinds used countdown timers and other tactics to suggest that sales were about to end. When the timers hit zero, though, the retailer would launch a new sale “with a different name but a comparable discount, with an updated timer stating that the sale would expire at midnight the next day.” Allegedly, that cycle continued for over a year.

• Misleading Regular Prices Discounts: The plaintiffs alleged that SelectBlinds often advertised a “regular” price with a strikethrough, followed by the sale price. The retailer also often advertised the percentage of the discount comparing the sale price to the regular price. According to the plaintiffs though, SelectBlinds rarely sold the items at the regular prices – they were almost always on sale.

It’s likely that these types of lawsuits will continue, so retailers need to pay close attention to these cases and to pricing laws, particularly when they advertise discounts, sales, or other price reductions.

Background and Priorities of the Office

Given Colorado’s larger size and what AG Weiser called a “range of inputs” including from the legislature and the public, the Consumer Protection Section is comprised of many specialized teams including an opioids unit, a utilities consumer advocate unit, a consumer credit codes unit (where the office plays a supervisory role in non-bank lending), and a civil rights and corporate fraud unit. The section also encompasses traditional consumer protection issues such as consumer fraud and antitrust. For example, in response to public outcry and legislative concerns, the office is actively reviewing student loans, fees, and student loan servicing as potential areas of deception and consumer harm.

Like most states, the office also uses consumer complaints filed with the office to inform its priorities. While Colorado’s complaints were historically not public, the office started a pilot program about a year and a half ago to forward complaints to some businesses for resolution. An expansion of this program should increase business’ awareness of potential issues as they arise.

Collaboration with States

Colorado has a robust history of participating in multistate consumer investigations. AG Weiser touted the multistate’s ability to create a comparative advantage and leverage the distinct strengths and resources of each state. “We’re better together,” he said. Moreover, states may provide a more efficient and streamlined settlement for businesses that are involved in nationwide investigations.

Price Gouging & Auto-Renewals

AG Weiser noted that in addition to its general UDAP law, the Colorado Consumer Protection Act, the office enforces specific consumer protection laws related to topics such as price gouging and auto-renewal charges. Under Colorado’s price gouging statute, it an “unfair and unconscionable act” when “a person charges a price so excessive as to amount to price gouging.” AG Weiser emphasized that the statute relies on a reasonableness standard which is based on comparison with the market. AG Weiser hypothesized that if there is a fire in Boulder County, if people are looking for a place to the stay that night, it’s understandable that the average will go up a little for the hotels. However, if one hotel charges $2,000 extra because they know they can take advantage of a family’s dire situation, AG Weiser identified that actor as an “opportunistic seller” who is violating Colorado’s price gouging laws. He said it is important to note that, like with many states, there has to be a declared state of emergency to trigger price gouging laws.

Auto-renewals have also been a hot topic in Colorado (as with many state and federal enforcers) as a specific Colorado law took effect in 2022. Mr. Blake emphasized the state’s commitment to enforce the recent statute and noted some of the more unique aspects, such as requirements for monthly subscriptions to provide annual reminder notices to consumers.

Colorado Privacy Act

AG Weiser stressed “if you’re a business today, and you’re not thinking about data, you need to wake up.” Colorado was the third state to pass a comprehensive privacy law. With the law now in effect, the office is paying particular attention to how businesses are reacting and adapting. AG Weiser provided some historical context to the law and noted that the CPA was intended to be “principle based” and not “prescriptive” with the knowledge that “technology changes and we need to have an adaptable regime.” Importantly, the office wants to focus its attention on businesses committing “flagrant fouls and not ticky tack fouls. If you’re trying and make a mistake, that’s okay, but if you’re deliberately thumbing your nose at the law? Not okay.”

Mr. Blake discussed Colorado’s thoughtful approach to regulatory process and rulemaking describing it as an extensive, collaborate, and transparent process to develop the rules that went into effect July 1. Blake said Colorado’s commitment is to continue in the spirit of collaborative rulemaking for consumers, members of industry, and sister states. AG Weiser added that the rulemaking process was critical to the CPA. The office started with informal stakeholder process, then issued model rules, received comments, and by the end of the process evaluated the comments and made adjustments prior to issuing final rules.

The office has conducted significant outreach to the business community to maintain the transparent approach to implementing the CPA. Mr. Blake discussed how the office sent a series of letters to businesses informing them of their duties under the CPA after the bulk of the rulemaking process was finished, the purpose of which he explained was to inform them that the law was in effect and what they can anticipate.

As we’ve previously reported, the CPA provides Colorado residents with the right to opt out of use of personal data for sale and targeted profiling, and next year they will have the right to use a universal opt out mechanism. The CPA also imposes a data minimization requirement and mandates covered businesses conduct data protection impact assessments before conducting data processing activities that present a heightened risk to consumers.

Mr. Blake stated that the office welcomes questions. Though the AG office does not answer individual questions, the office considers the questions for FAQs or future rulemaking. The office intends on releasing an FAQ in the coming months, with additional guidance on the universal opt out requirement going into effect July 1, 2024.

Artificial Intelligence

As AG Weiser’s office has discussed before, AI is a hot topic for state and federal agencies. AG Weiser stressed that not having the rules of the road for AI poses some potentially significant risks for our whole society. He stated that one of most important functions of consumer protection law is to build trust with consumers. If bad actors are not held accountable for harming consumers, then the overall trust environment is undermined for everyone. As such, AG Weiser worked with other states to issue a letter to the National Telecommunications and Information Administration (NTIA) and also gave a speech in front of the Federal Circuit Bar Association addressing his concerns for AI and its potential harms. Colorado has some tools available to curb potential harms from AI such as requirements for risk assessments and transparency under the CPA.

Mr. Blake added that AI could pose a risk of accelerating discriminatory practices. However, even without specifically tailored AI statutes, UDAP (unfair deceptive acts and practices) laws provide flexibility to law enforcement to deal with AI and other new technologies that create consumer harm.

Teen Mental Health

AG Weiser, like many of his AG colleagues, has made teen mental health a priority. He described concerns that social media increases engagement with dark content that negatively impacts teen mental health. AG Weiser said that the office evaluated its tools available such as the Children’s Online Privacy Protection Act (COPPA), but noted it falls short in only protecting children under 13 years of age, leaving teenagers unprotected. Mr. Blake added that the challenge is to assess whether these companies broke the law when it came to this teen mental health crisis. As Colorado’s investigation proceeds, the office will consider potential avenues for justice and rectification.

Join Kelley Drye’s State Attorneys General Ad Law Team for the next program in the 2023 State Attorneys General Webinar Series featuring Illinois Attorney General Kwame Raoul and his Consumer Protection Chief Susan Ellis on August 29 at 2:00 ET. Register here.

In 2020, online retailer Boohoo – whose brands include PrettyLittleThing, NastyGal, and boohooMAN – was hit with a lawsuit alleging that it frequently ran misleading sales. For example, had you been in the market for a pair of pink peach skin pocket flared pants at this time two year ago, you might have been excited to find this pair for $14, which is 67% off the crossed-out price of $42:

California law generally prohibits a company from advertising a “former price,” unless that price was the prevailing market price within a three-month period preceding the ad. According to the plaintiffs, though, the retailer had not sold items at the advertised crossed-out price during that three-month period. Instead, the crossed-out price was allegedly made up to create the illusion of a discount.

As part of the settlement, each class member will receive a gift card to use toward the purchase of any item on the site from which they’d originally made a purchase. In addition, the retailer agreed to conspicuously disclose that the “original” price advertised on a product page is not intended to indicate a former price. The required disclosure reads:

Our percentage off promotions, discounts, or sale markdowns are customarily based on our own opinion of the value of this product, which is not intended to reflect a former price at which this product has sold in the recent past. This amount represents our opinion of the full retail value of this product today based on our own assessment after considering a number of factors.

It’s likely that these types of lawsuits will continue, so retailers need to pay close attention to these cases and to pricing laws, particularly when they advertise discounts, sales, or other price reductions. Everyone likes a sale (and some people like pink peach skin pocket flared pants), but if you aren’t careful about how you structure your sales, your company could end up paying a high price in the end.

Last year, MPS challenged various claims that 4Patriots made about its food kits at the NAD, and this year, 4Patriots filed its own challenge against MPS. Although much of what’s in NAD’s decisions may not be relevant to companies outside of this niche market, the most recent decision address at least three issues that regularly come up across a broad range of industries.

Made in USA

The MPS website included various claims that products were “Made in USA” alongside patriotic imagery. Because 4Patriots sells similar products, it knows that some of the ingredients in the MPS kits are likely to be imported. NAD summarized the requirements for “Made in USA” claims – which we’ve also summarized here – and recommended that MPS qualify its claims with a clear and conspicuous disclosure explaining that some of the ingredients in its kits are imported.

False Sense of Urgency

4Patriots argued that MPS creates a false sense of urgency by suggesting that sales are about to expire, when that’s not true. MPS provided evidence showing that various sales ended as advertised, and NAD agreed that those examples were not misleading. However, 4Patriots submitted examples of two sales that allegedly continued past their advertised end date.

NAD noted that it “is well-established that when an advertiser represents an offer to be for a limited time, that offer must, in fact, be available for only a limited time, and a reasonable amount of time must pass before the advertiser can make similar claims again.” NAD recommended that MPS “take appropriate steps to ensure that its time-limited claims are in fact limited.”

Reviews

Because the MPS site includes a higher percentage of 5-star reviews than other sites have for MPS products, 4Patriots suggested that MPS manipulates reviews. MPS explained that it posts all verified reviews, as long as they don’t contain offensive language, regardless of whether they are positive or negative. It suggested that some negative reviews on other sites may be related to products sold by unauthorized resellers, who may be selling outdated or sub-standard products.

NAD did not appear to take a side on the dispute about whether MPS had manipulated its reviews – something it likely couldn’t determine based on the record – but it did recommend “that when the advertiser’s website appears to publish all product reviews, that the advertiser post all reviews on its website, subject to its policy preventing reviews with vulgar or offensive language.”

Lessons

There aren’t any surprises in the decision, but there are a few points worth noting:

• Although the FTC has been the main source of Made in the USA complaints (like this one), complaints can also come from competitors. That’s particularly true in cases where competitors use similar ingredients or components that are sourced from similar suppliers and have a good idea of how you operate.

• Creating a sense of urgency can be an effective (and lawful) marketing technique as long as your claims are accurate and sales end when you say they will. But, as we’ve posted before, a false sense of urgency can lead to complaints from consumers, regulators, and competitors.

• The authenticity of reviews has long been a concern of the FTC and other regulators. (Click here, here, and here, for example.) Competitors and consumers are likely to bring more challenges as well, though proving fraud could be difficult without discovery (something that isn’t available in an NAD proceeding).

For more advertising and privacy law survival tips, be sure to check out our blog, our podcast (where you can hear our posts read by our talented host in her mellifluous voice), and other resources.

• Some emails advertised that products were on sale “today only” or “this week only.” The next day (or the next week), however, the plaintiffs received emails advertising the same sale.

• Some emails advertised that consumers had one “last chance” to take advantage of a discount. The next day, however, the plaintiffs received emails advertising the same discount.

• Some emails advertised a sale with a fixed deadline. The next day, however, the plaintiffs received emails stating that the sale had been “extended.”

Moreover, some of those emails include images of ticking clocks and language urging consumers to “hurry” or “open quickly.” The complaint alleges that these tactics create a false sense of urgency by suggesting that consumers had to act quickly to take advantage of a sale, when that wasn’t true.

Exhibits to the complaint include examples of 51 emails received by one plaintiff and 40 received by the other, along with explanations of why the plaintiffs think the subject lines are false and examples of other emails that allegedly contradict claims in the challenged emails.

The plaintiffs argue that Old Navy’s tactics violate Washington’s Consumer Protection Act and Commercial Electronic Mail Act (which has a limited private right of action), and they are seeking $500 in statutory damages per each email that violates the latter.

As we wait to see how this case develops, companies should ensure that they don’t misrepresent their promotional offers. Creating a sense of urgency can be an effective (and lawful) marketing technique as long as all claims are accurate. But a false sense of urgency will annoy consumers, lead to lawsuits, and generate unwanted attention from regulators.

Last week, consumers filed a class action against Safeway and its parent company alleging that the grocer unlawfully inflates the regular retail price of products used in buy-one-get-one-free promotions, causing consumers to effectively still pay for the “seemingly” free product. For example, the complaint alleges that Safeway sold a product for $7.47 one day and for $10.99 the next day, as part of a BOGO offer.

The complaint cites the FTC’s guides on using the word “free” – which state that a consumer “has a right to believe that the merchant will not directly and immediately recover, in whole or in part, the cost of the free merchandise … by marking up the price of the article which must be purchased” – and argues that the guides should be persuasive in determining whether a practice violates state law.

It’s too early to tell how this case will turn out or how the FTC’s guides, which were adopted in 1971, will apply today in a context in which some retailers adjust their prices frequently. It’s likely that these types of suits will continue as bargain conscious consumers look for sales, though. We’ll keep our eyes open for updates. In the meantime, you can click here for more developments on pricing and sale practices.

The District alleges that Amazon’s Flex tipping practices deceived customers from 2016-2019, stopping only after an FTC investigation ultimately resulted in a 2021 settlement. While Amazon had represented that all tips would be paid to drivers, in actuality, tips were deducted out of payments to those drivers. This resulted in a net benefit to Amazon, rather than to the drivers, which the AG claims was contrary to customer expectations and deceptive even in the eyes of its own employees. The District is seeking civil penalties and a court order to ensure that Amazon is never able to engage in this practice again. The FTC settlement included a $61.7 million payment which represents the full amount that Amazon allegedly withheld from drivers and will be used by the FTC to compensate drivers. Amazon argues that the FTC settlement has resolved the issues in this matter.

Some takeaways here?

• Old, past practices that stopped years earlier may not prevent a state AG investigation.
• A prior investigation and resolution with another enforcement agency, including the FTC, may not prevent a state AG investigation.
• Fees are still a hot topic! Companies wanting to stay off of the state AG radar should make sure that all fees are clearly disclosed – not just the amounts, but their purpose too. And all disclosures should be truthful and non-misleading.

Texas v. Cal-Maine Foods, Inc.: In this case, Attorney General Paxton sued one of the largest egg producers in the country for raising prices in sales to grocery stores in the early days of the Covid-19 pandemic. Cal-Maine moved to dismiss the case raising both constitutional challenges to Texas’ price gouging law as well as asserting that Texas had no legal or factual basis for the claim. Cal-Maine’s primary argument was that the price gouging law was unconstitutional for three reasons: 1) it is vague (Texas law prohibits “excessive” or “exorbitant” pricing without defining those terms), 2) it violates the Dormant Commerce Clause (since Cal-Maine sells to national chains, they would be unable to adjust their pricing to be state-specific), and 3) it is a regulatory taking (by forcing Cal-Maine to sell eggs below the price they paid). Cal-Maine further asserted that because it was merely pricing eggs using the same methods it always did – through a price index – it could not have “taken advantage of an emergency” as required for price gouging under Texas law. The trial court agreed with Cal-Maine, and entered an order dismissing the case, without providing a written opinion explaining the basis. Texas then appealed.

On August 16 the First District Court of Appeals reversed and remanded. The court’s focus was on the standard necessary to dismiss an action under Texas Rule of Civil Procedure 91a, which requires the petition have “no basis in law or fact.” Noting there is nothing interpreting what “excessive” or “exorbitant” means under Texas’ law, the court seemingly adopted the parties’ general assertion that there must be a comparison between the price charged during the emergency and what is “usual, proper, necessary, or customary.” In a motion to dismiss however, the Court did not need to decide the appropriate time period to analyze Cal-Maine’s pricing increase, finding that under any reading the State had made a claim that should survive a 91a motion. In reviewing the three constitutional affirmative defenses raised by Cal-Maine, the Court found each to be premature, noting that while Cal-Maine may ultimately have a colorable claim, the record on appeal of a motion to dismiss was insufficient to make that determination.

New York v. Quality King Distributors, Inc. and King: Switching gears from eggs to Lysol, Attorney General James also brought an early case in response to Covid-19 under New York’s price gouging law. The State sued Quality King, a wholesale distributor to grocery and discount stores, over its higher prices of Lysol products, increasing its profit margin 75% from November 2019 to March 2020. On a motion to dismiss, the Court granted the motion finding that as a matter of law, Quality King did not charge unconscionable or extreme prices, as there wasn’t a large disparity between its pricing right before and after the emergency declaration, and because its pricing was in line with, and even less than, other competitors. New York appealed.

Just as in Texas, the First Judicial Department in New York reversed and remanded. To show a price gouging claim, New York needed to show 1) an abnormal disruption of the market, 2) that the good or service in question is vital to the health, safety, and welfare of consumers, and 3) the price charged was unconscionably excessive.

Looking at a variety of Covid-19 emergency declarations, the Court ultimately found that February 26, 2020 was the date of the onset of the market disruption, as that was the date the CDC found Covid-19 to pose an imminent threat. In finding the second “vital good” prong met, the Court examined the products at issue in the eyes of the consumer at the time of the market disruption – it didn’t matter that scientific hindsight questioned whether Covid-19 could be transmitted from surfaces, since consumers believed they needed the products at that time. For the third “unconscionably excessive” prong, the Court compared prices charged on February 26 to those charged a month later and found significant increases. Like the Cal-Maine case, the Court made clear this wasn’t a definitive finding of a violation of law, but rather showed that the State had met its prima facie burden to proceed with its case. Unlike Cal-Maine however, the Court squarely addressed constitutional vagueness claims raised by Quality King. While noting that the statute doesn’t provide any metrics for calculating what “unconscionably excessive” pricing means, the Court nonetheless found that the statute met the relaxed standard provided to civil laws, and that it did not encourage arbitrary or discriminatory enforcement.

While both appellate courts have breathed new life into these AG enforcement actions, it remains to be seen whether either or both companies will ultimately be held liable under those laws. In the meantime there are some notable takeaways:

• All levels in the supply chain may be on the hook under certain price gouging statutes. Both enforcement actions here concerned businesses that do not sell directly to the end consumer. This indirect relationship nonetheless provides grounds for certain AGs to enforce, and companies should take note that if they ultimately impact consumers prices, they may be on the hook for price gouging enforcement.
• In an increasingly partisan space, price gouging remains completely bipartisan. The fact that two states like Texas and New York, who are at opposite ends of the political spectrum, could bring similar cases shows the importance that AGs will put on pricing issues in the face of emergencies.
• Challenges to vagueness of price gouging laws may not succeed. New York’s survival of the constitutional challenge to the vagueness of its price gouging law is an important precedent as businesses and enforcers alike struggle with what constitutes price gouging in each state. As we discussed in our webinar, many states include similar descriptors of “excessive” or “exorbitant” without specific definition, leaving companies in the challenging position of determining what type of price increase, if any, is permissible during an emergency or market disruption. Seeking legal guidance on price changes during an emergency declaration is even more advisable given these terms were held, at least in one instance, not to be unconstitutionally vague.

As workforces become increasingly mobile and remote work is more the norm, employers face the challenge of balancing the protection of their employees’ personal data and privacy against the need to collect and process personal data to recruit, support and monitor their workforces. Mounting regulations attempt to curb employers’ ability to gather and utilize employee data—from its historical use in processing employee benefits and leave requests to employers’ collection, use or retention of employees’ biometric data to ensure the security of the organization’s financial or other sensitive information systems. Learn what employers can do now to protect employee data and prepare for the growing wave of data privacy laws impacting the collection and use of employee personal data.

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Avoiding Price Gouging Claims Wednesday, August 3 Recently State Attorneys General, the House Judiciary Committee, and many others have weighed in on rising prices in an attempt to weed out price gouging and other forms of what they deem “corporate profiteering.” States and federal regulators are carefully looking at pricing as consumers and constituents become more sensitive to the latest changes and price gouging enforcement is an avenue states may be able to use to appease the public. Unlike other emergencies in the past, the current state of supply chain and labor shortages, along with skyrocketing costs for businesses, make it unrealistic for companies to simply put a freeze on any price increases. This webinar will cover:

• The basics of price gouging laws and related state emergency declarations and how to comply • The differences and varied complexities in state laws • General best practice tips • How AGs prioritize enforcement

Register

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Find more upcoming sessions, links to replays and more here

Later in the week these concerns were echoed in a House Judiciary Committee meeting addressing in part “Combatting Corporate Profiteering.” State representatives raised concerns on prices in these same industries of oil and formula, for instance. We have already also seen states inquire about gas prices. So, Georgia likely is not the only state scrutinizing prices as we encounter continued supply chain issues and inflation.

Retailers and businesses across the supply chain should continue to monitor price gouging laws and state emergency declarations for compliance. Though more direct Covid-related price gouging enforcement has faded, emergencies related to Covid or other emergencies could continue or revive price gouging restrictions. And it’s important to remember that price gouging laws are varied in the states, with many leaving undefined exactly what type of price increase is permissible and instead using undefined standards like “excessive.” Unlike other emergencies in the past, the current state of supply chain and labor shortages along with skyrocketing costs for businesses make it unrealistic for companies to simply put a freeze on any price increases – so states may be testing some of these undefined concepts soon.

States will be carefully looking at pricing as consumers and constituents become more sensitive to the latest changes. Price gouging enforcement is an avenue states may be able to use to appease the public in this economy. But with this increased scrutiny by states it is extremely important to have a complete understanding of what is permissible in each state a business operates in, all while being sensitive to the varied complexities of different state laws.

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Litigation

Last year, we discussed an early blow to the pink tax theory of liability in Schulte v. Conopco, d/b/a Unilever, et al. In Schulte, the plaintiffs alleged that various personal care manufacturers and retailers violated the Missouri Merchandizing Practices Act (MMPA) by charging more for deodorants marketed for women than allegedly similar deodorants marketed for men. The product lines at issue contained similar, but not identical, ingredients, came in different sizes, and were available in different scents (fifteen “feminine” scents in the line marketed for women and five “masculine” scents in the line marketed for men). The Eastern District of Missouri dismissed the complaint, ruling that “Missouri law does not compel identical products to be sold at the same price” and that the plaintiff’s remedy “lies with legislation, not litigation.” The Eighth Circuit affirmed on the grounds that the plaintiff mistook “gender-based marketing for gender discrimination.” In order to state a claim, the court ruled that the plaintiff would have to allege that the only difference between the products was the price and the intended target of the marketing. Here, because the plaintiff conceded that the products were, in fact, different, thus dismissal was appropriate.

In Lowe v. Walgreens Boots Alliance, Inc., et al., the Northern District of California dismissed another pink tax putative class action, albeit on different grounds. In Lowe, the plaintiffs alleged that the price of Walgreens’ hair regrowth treatment for women (a generic alternative to Rogaine) was almost 1.5 times higher than the male-marketed alternative. The plaintiff alleged that the products had identical active ingredients, and that the only differences were the dosing instructions and the price tag. The court’s justification for the dismissal was twofold. First, the court ruled that the plaintiff’s state consumer protection claims were preempted because, under the Federal Food, Drug Cosmetic Act (“FDCA”), Walgreens’ generic product labels were required to exactly mirror the brand-name label. Thus, to the extent the plaintiff claimed that the products labels were deceptive, such claims were preempted. The court also dismissed the plaintiff’s claim under California’s Unruh Act because the statute does not apply to goods, but rather to “accommodations, advantages, facilities, privileges, or services.” Lowe has appealed the decision to the Ninth Circuit.

While California’s Unruh Act seems to be a dead end for product pricing discrimination claims (at least for now), courts have applied the Unruh Act to claims alleging gender-based pricing discrimination in services. For example, in Department of Fair Employment and Housing v. M&N Financing Corp., et al., the plaintiff alleged that M&N Financing purchased retail installment contracts from used car dealerships, and that the gender of the purchaser of the car factored in to how much M&N would pay for the contract. The Court of Appeal found that this practice was a “per se” violation of the Unruh Act warranting statutory damages even though the plaintiff had not demonstrated actual injury.

State Legislation

In September 2020, New York passed a law prohibiting individuals and entities, including retailers, suppliers, manufacturers, or distributors, from charging a different price for two “substantially similar” goods or services based on the gender for whom the goods or services are marketed. As in the litigation context, this concept of “substantial similarity” is the key. Substantially similar goods are defined as two goods that exhibit no substantial differences in the materials used in production, intended use of the good, the functional design and features of the good, and the brand of the good, and substantially similar services are defined as two services that exhibit no substantial difference in the amount of time to provide the service, the difficulty in providing the service, and the cost in providing the service. An individual or entity charged with violating the law can avoid liability by proving that any price difference is based upon a number of gender-neutral factors including, but not limited to, the additional time or cost of manufacturing such goods or providing such services. While the new law does not provide a private right of action to consumers, it permits the attorney general to obtain an injunction against such prohibited sales, as well as restitution for consumers and civil penalties.

New Jersey also recently proposed a bill that prohibits discriminatory pricing with respect to substantially similar services and consumer products. The definition of “substantially similar” is, on its face, almost identical to the one adopted under the New York law. Under the proposed law, certain services providers (including tailors, barbers, hair salons, and dry cleaners) would be required to clearly and conspicuously disclose to the customer in writing the pricing for each standard service provided, along with a clearly visible sign notifying customers that gender-based price discrimination is prohibited under New Jersey law. This bill is currently under review by the Assembly Consumer Affairs Committee.

A similar bill was introduced in Massachusetts creating a 15-member working group on gender equity regarding the pricing of items marketed towards women in Massachusetts. The group will report its findings and recommend any changes in current law by the end of 2022.

Federal Legislation

In June 2021, California Congresswoman Jackie Speier reintroduced the Pink Tax Repeal Act, a bipartisan bill that seeks to end gender discrimination in the pricing of goods and services. The bill would prohibit the sale of substantially similar goods or services that are priced differently based on gender, allow the Federal Trade Commission to take enforce violations, and permit State Attorneys General to take civil action on behalf of wronged consumers. Currently the bill is before the Subcommittee on Consumer Protection and Commerce.

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Last week, Jessica Rich wrote about the FTC’s rulemaking plans for 2022. Make sure you read that post for a detailed analysis of what the Commission is planning. As we looked at which of those topics have generated the most interest on Ad Law Access recently, we wanted to point you to where you can find additional information.

• The FTC will review its Guides Against Deceptive Pricing and its Guide Concerning Use of the Word “Free” and Similar Representations. Although most of the activity in these areas has taken place at the state level, it will be interesting to see what the FTC adds to the ongoing conversation. (Click here for more coverage on pricing claims.)
• The FTC will review its Guides for the Use of Environmental Marketing Claims. A lot has changed since the Guides were last updated in 2012 and, as we’ve noted before, the lack of clarity in certain areas is leading to an increase in lawsuits and other challenges. (Click here for more coverage on green marketing.)
• The FTC is still analyzing and reviewing the public comments it has received as part of its review of the Children’s Online Privacy Protection Rule (or “COPPA”). That hasn’t stopped the FTC and other regulators for brining enforcement actions, though. (Click here for more coverage on children’s privacy.)
• The FTC is still analyzing and reviewing the public comments it has received as part of its review of the Endorsement Guides. As we’ve noted, this has been a hot topic, and the FTC recently sent out 700 warning letters, which could signal upcoming enforcement. (Click here for more coverage on endorsement issues.)

We’ll keep you posted, as these develop. In the meantime, rest up over the holidays because 2022 could be a bumpy year.