On October 7, 2023, California Governor Newsom signed into law an amendment to the California Consumer Protection Act, effective July 1, 2024, that protects all but a few specific categories of commercial transactions that are not relevant here. has decided to end the use of drip pricing in commercial transactions (with the exception of the following two). Please come soon). Carnival Cruise Lines' reaction to this change is discussed in an April 19 TMR article. Other suppliers are not far behind.
Under a new California law, it is illegal to advertise, display, or offer a price for a product or service that does not include all drip pricing (excluding taxes and fees that the government imposes on the transaction): Advertising to California Consumers. The exact language added to the existing law is:
(29) (A) Advertise, display, or offer a price for any product or service that does not include all required fees or charges other than:
(i) any taxes or fees imposed by any government on the transaction;
(ii) [delivery charges related to physical goods not relevant here]
In practice, this is expected to impact advertising in all markets for targeted products/services. Otherwise, companies will end up advertising two prices for the same product/service, which I believe will cause a lot of confusion.
Drip pricing, also known as “junk fees,” is also the subject of Federal Trade Commission rulemaking, which we discussed in Will the U.S. Government Really Regulate Junk Fees? The travel industry is one step closer to ending junk fees. Fighting junk fees: Big companies defend fraud.
California isn't waiting for the federal government to ask.
Carnival may be the first to announce price changes in response to California's efforts, but travel advisors need to understand:
1. California Drip price changes apply to all advisor ads advertising at the specified price, not just cruises. As suggested above, I would not expect a product/service advertiser to try to set two price sets in his advertisement. One is to show the full price to California consumers, and the other is to offer a trickle of extra charges to other consumers. It happened often in the past.
2. Drip pricing limits apply to everything, including hotels, whose infamous “resort fees” have already succumbed to pressure from the FTC in many cases.and
3. California law provides exceptions for a limited number of listed services. Therefore, if a travel advisor advertises, for example, cruises and charges customers a mandatory fee for that transaction, the intent is that the advisor's advertisement for cruises must include the service fee in the total amount advertised. It seems that there is. cruise.
If my thinking in (3) above is correct, an advisor's advertisement where the advisor adds a mandatory fee/commission will show a higher total price for the same service than the supplier's own advertisement for the same underlying service. That will be the case. This appears to be clearly the intended result of California law. If he is correct, one further complication arises. How are the required commissions calculated by the advisor on the entire transaction allocated to component advertising that is not part of the tour but merely an element of the multi-service transaction being processed? By the client's advisor?
Hopefully, these intended and unintended consequences of the new law will be addressed in soon-to-be-adopted regulations, and industries such as travel advisors will be provided with sufficient notice by July 1 on how to adjust their advertising practices. I hope that. The time to achieve this is short, especially for industry. You will have an opportunity to comment on the proposed regulations.
Another question raised regarding the cruise sector: Should gratuities that are automatically charged to the customer's onboard account be included in the total advertised price? Is gratuity really not optional at the guest's direction during the cruise? If not, I think the answer is “yes.” Even if travelers can opt out or change their tip before making the final payment, tipping is still optional and not “required” given the economic impact.
However, how chips are explained to consumers is important. I don't think California would be happy with a play on words that misleads consumers into tipping that could have been avoided. This should be made clear in travel advisor ads indicating that gratuities are automatically applied but may change prior to payment. If this is not the case, and my rational impression upon seeing the ad is that consumers are misinformed into thinking that tipping is unavoidable, I would like to think that California would I expect that you will request that the tip be included.
The same principles should be applied to other elements of the trip, such as cruises, tours, and hotel stays. It is essential to clearly advertise additional charges, such as the infamous resort fees. Otherwise, unless directed to the contrary by the State of California, I believe these fees must be included in the advertised price to meet California law.
The law excludes two categories of services related to travel advisors. (1) car rentals if the specified disclosures are met, and (2) airlines under the federal preemption provisions of the Federal Aviation Act that prevent state regulation of “routes.” Airline “fares and services”. At least for now, car rental and air transportation contracts incorporated into “tickets” will continue to be subject to a number of additional terms and conditions that affect the final price paid by the consumer.
Travel advisors who follow the “when in doubt, include it” principle must safely comply with California's drip pricing laws. California and others predict this development will be a boon for consumers who will finally be able to avoid the mathematical exercise of comparing the overall price of products/services they purchase in travel and other categories. There is. However, California will need to address and resolve some of the law's related impacts on adjacent industries, such as travel advisors.
