California and Illinois spearhead initiatives to eliminate restaurant surcharges and hidden fees to protect consumers from hidden costs. This effort is part of a broader trend to promote transparency in pricing across various industries.
California’s Bold Step
California has taken a significant step by confirming that its ban on hidden fees, originally signed into law last fall, also applies to restaurants. This law, known as SB 478, addresses “drip pricing” and other deceptive fee practices. Initially, the ban covered hotels, concerts, and sports venues, but it now explicitly includes restaurant service and delivery fees. The state’s attorney general clarified this inclusion, and the law will take effect on July 1. This development ensures consumers see a more transparent and honest pricing structure when dining out or ordering food.
Illinois Follows Suit
Meanwhile, Illinois is on a parallel path with its proposed Junk Fee Ban Act, a comprehensive legislation that recently passed the State House of Representatives and is now headed to the Senate. If it successfully navigates the legislative process and is signed into law by Governor JB Pritzker, it will take effect in January 2025. This law prohibits hidden or additional fees across various sectors, including restaurants, concert tickets, and rideshare apps. Legislators emphasize that this move could save a typical Illinois family of four an average of $3,000 annually by bundling fees into the original price of goods and services.
Federal Efforts and Industry Pushback
On the federal level, the Federal Trade Commission (FTC) has proposed a ban on ‘junk fees,’ targeting misleading consumer charges. Although this ban has yet to be enacted, the FTC recently held an informal hearing to discuss the proposed legislation. During the hearing, representatives from the restaurant industry argued against including restaurant bill surcharges and delivery fees in the federal ban, expressing concerns about the impact on pricing structures. The National Restaurant Association, through its executive vice president of Public Affairs, Sean Kennedy, criticized the proposal, stating, ‘The sweeping nature of the FTC proposal on the restaurant industry is the epitome of a solution in search of a problem.’ The potential impact of this ban on the industry is a point of contention in the legislative process.
Cost Implications
The implementation of these bans on junk fees is not without cost. The FTC estimates that the new regulations could cost business owners up to $3.5 billion to implement, translating to about $5,000 per restaurant. This potential financial burden has fueled industry concerns, with some restaurant owners warning that the changes could lead to higher overall consumer prices. Jeffrey Gosnear, president of Grotto Pizza in Delaware, highlighted a practical implication: “Right now, order one pizza or 15, and you only pay one delivery fee. If we have to put the delivery cost in the menu, you will pay way more when you order than if we just charged a delivery fee.”
Consumer Benefits
The push for transparency in pricing is motivated by the substantial benefits it provides consumers despite any concerns. These laws aim to create a more straightforward and honest marketplace by eliminating hidden fees and surcharges, helping consumers better understand the actual cost of goods and services. That could mean significant savings and fewer surprises when paying bills for families and individuals.
Conclusion
California and Illinois are at the forefront of a movement to eliminate deceptive pricing practices in the restaurant industry. As these laws take effect, they promise to reshape how restaurants and other businesses disclose their fees, promoting greater transparency and potentially saving consumers money. While the financial implications for businesses are considerable, these initiatives aim to ensure fair and transparent pricing for all.
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