We are writing a series of blog posts exploring some of the most pressing legal issues in price advertising. This is Part I, which focuses specifically on the legal risks of adding tariff-related surcharges and how new laws and litigation trends are raising the stakes for businesses.
Tariff-Related Surcharges
In today's pricing landscape, adding a surcharge to offset tariff costs might seem like a straightforward way to protect margins—but it's a legally risky move. Over the past year, regulators and plaintiffs' attorneys have zeroed in on so-called "junk fees" and "drip pricing," where businesses advertise a low upfront price but tack on mandatory fees later in the checkout process. This approach can leave consumers with a higher total cost than expected—and businesses facing class action lawsuits or enforcement action.
There are currently three state laws that address this issue specifically—California (SB 478), Massachusetts (940 CMR 38.00), and Minnesota (HB 3438)1—as well as unfair and deceptive acts and practices (UDAP) laws across all 50 states that could be used to challenge the practice, along with many other specific pending state laws, including Colorado (HB 1090), Illinois (SB 1486), New York (SB 363), and Virginia (SB 1212).2
At a very top level, the three laws:
- Prohibit advertising or displaying a price for a product or service unless it reflects the total amount a consumer is required to pay, excluding only government-imposed taxes and, in some cases, shipping—provided those costs are disclosed prior to checkout. In other words, advertising one price and then adding a mandatory surcharge or additional fee at checkout is likely a violation of the law.
- Require businesses to clearly and accurately describe the nature and purpose of any fees. For example, labeling a charge as a "service fee" when it is actually a general revenue or profit driver may be considered deceptive.
- May impose prominence or formatting requirements for price information (and require an all-in price to be displayed more prominently than other price information).
Surcharges have also been an area of recent enforcement and class action activity, particularly in the retail context. For example, in 2024, a class action lawsuit was brought by consumers who purchased products at Crossroads Trading Co and were charged a "Living Wage Surcharge" or "Surcharge" upon purchase of the products. According to the complaint, the store misled the general public by advertising certain prices for its retail goods while adding a 3% "Living Wage Surcharge" after the subtotal calculation at checkout. Case currently pending. Sheena Jenkins v. Crossroads Trading Co, Inc., 2:24CV10677 (C.D. Cal. 2024).
Broadly, with these evolving legal, economic and political circumstances, simply adding a tariff-related surcharge at checkout is likely to raise red flags—and could expose your business to regulatory scrutiny or class action risk. This doesn't mean, however, that you're out of options. As the pricing landscape shifts, getting creative with your advertising strategy is more important than ever. We are here to help!
Footnotes
- We've written about these laws before if you'd like more details. See, e.g.: "Cracking Down on Hidden Fees"; "'California Enacts Law Banning "Junk Fees'"; and "Massachusetts AG Implements Regulations on 'Junk Fees' and Auto-Renew Offers".
- There is also a Federal Rule and many state laws that specifically address on price transparency in the event and hotel industries. While not directly applicable to a potential surcharge, it shows that drip pricing is an area of regulatory and class action focus across industries.
This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.
