New Laws Target Junk Fees: What It Means For Self-Storage

Posted by Brad Hadfield on Jun 26, 2024 8:54:30 AM

Junk fees, also known as hidden fees or drip pricing, are under attack across a wide variety of industries. The complaint is that businesses' pricing programs are “deceptive” because the final price that a consumer pays is rarely the price that was advertised. While many states are beginning to address the issue, California is leading the charge by passing SB 478, a law prohibiting drip pricing, which goes into effect July 1, 2024.

A Look At Junk Fee Laws

Many believe the attack on junk fees started with the airline industry. In fact, earlier this year, the Biden-Harris Administration announced it would protect airline passengers from surprise junk fees when purchasing a ticket, requiring airlines and ticket agents to tell consumers upfront what fees are charged for a first or second checked bag, a carry-on bag, and for canceling or changing a reservation. The goal? To help consumers avoid unneeded or unexpected fees that can increase quickly and add significant cost to what may, at first, look like a less expensive ticket. The Administration expects that consumers will save over $500 million annually that they are currently overpaying in hidden airline fees.

Of course, junk fees have been a point of contention even before this. In April of 2023, Congress introduced the Junk Fee Prevention Act. Although that federal bill has not yet passed, in October of 2023, the Federal Trade Commission (FTC) issued a notice of a proposed rule on “Unfair and Deceptive Fees.” The Commission states that the proposed rule would “prohibit unfair or deceptive practices relating to fees for goods or services”. The Federal rule would require that all fees and charges be disclosed and that the pricing be “clearly and conspicuously” presented.

So, if additional fees or charges were easy to miss or difficult to understand, the rule would consider the advertised price a “bait and switch,” luring customers in with one advertised price but ultimately charging them a different final price for the same advertised item. The FTC isn’t the only agency zeroing in on junk fee laws.

“Other potential regulatory action is being considered under the Consumer Financial Protection Bureau, the Federal Communications Commission, the Department of Housing and Urban Development, and the Department of Transportation,” says attorney Scott Zucker, Partner at Weissmann Zucker Euster + Katz, P.C. “But the federal government is not alone in its focus on deceptive pricing practices. Many state governments are also concerned with this issue, and now California has passed SB 478, which prohibits drip pricing.”

“The junk fee amendment provides guidance to businesses not only in California, but around the country,” explains Zucker. “The new law makes it a violation of the Act to ‘advertise, display, or offer a price for a good or service that does not include all mandatory fees and includes penalties for such acts including actual damages, punitive damages and civil penalties that can be charged for each alleged violation.’”

The Impact on Self Storage

There is a debate by some as to whether this would apply to self-storage. However, both Zucker and Joe Doherty, Government Affairs Director of the Self Storage Association (SSA), both believe it would, and cautioned self storage operators not to ignore this. “I don’t see any way for storage operators to get around SB478,” says Doherty. “All mandatory fees, except for taxes and shipping costs, must be included in the initial advertised prices. It is not enough to disclose at a later point before the rental has been completed.”

Ross Hutchings, Executive Director of the California Self Storage Association (CSSA), also believes it is important to heed the new law. “We know that there are a lot of angry people out there, much more so than just a few years ago,” he warns. “When rates are raised drastically and quickly on a tenant’s unit, many are no longer just accepting it. They’re asking where they can go to complain and get some answers. We would prefer if our industry handled these issues internally. If we don’t, we may wind up with some government oversight and/or price controls. SB 478 is not a price control law, and we want to keep it that way. So, it’s up to us within the industry to monitor our own actions so that doesn’t happen.”

Hutchings says that means making it clear if there are administrative fees, insurance requirements, a lock purchase fee, etc. “You can’t just say ‘$100 moves you in,’ you need to note clearly that there are other charges, and this can no longer be buried in the fine print.”

Zucker agrees. “This new scrutiny on fees and pricing practices comes at a time when more and more self-storage facilities are offering discounting or concession pricing,” he explains. “Since self-storage companies use the internet to advertise their pricing, it is important for self-storage operators to understand and apply this new law, updating their websites as needed to clarify their pricing and charges for their storage units.”

Justin Paquin, Senior Director of Product with self-storage software platform Tenant, Inc., believes that it’s important to stay compliant online, where it used to be easy to drip prices as a consumer moved throughout a transaction. "Operators and website vendors both play a role in keeping operators compliant with new legislation,” says Paquin. “Operators should make sure that their website vendor is tracking legislative changes and doing their part to ensure the operator remains compliant."

An End To Aggressive Price Hikes?

Will the junk fee laws put a stop to some operators’ aggressive rate hikes? In a three-part MSM Exclusive series, Travis Morrow, President of National Self Storage, highlighted how many large operators – and some independents as a way of staying competitive – were following a new pricing strategy: Lowering web rates to get people in the door, only to dramatically increase them just a month or two down the road.

Zucker says these strategies are likely not going to fly in this new environment. “The laws require significant pricing disclosure and transparency, including how much the discount is, how long it will last, and the actual price that will be charged once the discount ends.”

He says there should also be an enhancement of language in the website and other marketing that explains the right of the self-storage facility to increase the rental rates with 30 days advance notice based on the month-to-month nature of the self-storage contract.

“Clearly, this law will be the focus of future class action cases because of the potential penalties of up to $2,500 per violation. The Act also allows for the recovery of attorneys’ fees,” adds Zucker.

“Ultimately, self-storage operators need to look at the long game,” concludes Hutchings. “If we’re not careful, someone may try to tie-in the current pricing strategy into this new law. We encourage operators to be transparent about a low move-in rate so their renters are aware that increase(s) will be forthcoming. Our fear is that if we we’re not careful about how the public (our renters) are treated, like being transparent, we may wind up hurting the industry in the future.”

Junk Law Fees Coming To Other States

The Golden State isn’t the only pricing issue battleground. Other states like Connecticut, Florida, Hawaii, New York, Maryland, Massachusetts, Nebraska, and North Carolina are changing their laws to require full disclosure of all fees that apply to the transaction before the sale is completed.

“Illinois’ HB 4629, the Junk Fee Ban Act, is largely consistent with California’s SB 478, while Hawaii’s SB 2140 focuses on hotels and other similar accommodations,” writes attorney Amy P. Lally, a trial lawyer who practices in all areas of litigation, including class actions, false advertising claims, contract disputes, and real estate litigation.

She notes that in other states, attorneys general have taken up this mantle. “In November 2023, the Massachusetts attorney general proposed regulations requiring businesses to disclose to consumers the total price of a product, provide information regarding whether charged fees are optional or required, and simplify cancellation of trail offers and other recurring charges,” she adds.

Still Have Questions? Join the CSSA Peer Power Hour

CSSA, together with SSA ,have put together a Peer Power Hour owner discussion to talk about this “drip pricing and junk fees” legislation. This session will be this afternoon at 4:00pm for California Self Storage operators who are members of CSSA only.