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California’s SB 478 – …

California’s SB 478 – Another Flip Flop

Updated August 8, 2026. This article originally ran in 2024 when SB 478 took effect. It has been rewritten to reflect how the law has actually been interpreted since, what happened to the federal rule that was supposed to follow California’s lead, and where the restaurant exemption landed.

This is general information, not legal advice, and I am not an attorney. California pricing law carries a private right of action, so consult counsel licensed in the state before changing how you price anything.

California has flip flopped on credit card surcharging for forty years, and the current answer is more precise than either side of the argument you will hear from your processor.

Short version: a surcharge is not illegal in California. Adding one at checkout almost certainly is.

The forty year flip flop

1985

California bans credit card surcharges outright under Civil Code section 1748.1. Merchants may offer cash discounts, but may not add a fee for paying by card.

2018

A federal court rules the ban unconstitutional as applied, following the First Amendment reasoning in Expressions Hair Design. The state is barred from enforcing it against merchants who disclose the surcharge honestly. Note what changed here: a court limited enforcement. The legislature did not repeal anything, and the statute stayed on the books, which is why merchants have been confused ever since.

July 1, 2024

SB 478, the Honest Pricing Law, takes effect. It does not ban surcharges. It amends the Consumers Legal Remedies Act to prohibit advertising a price that does not include every mandatory charge, which reaches the same practical result by a completely different route.

That last distinction is not academic, and it is where most articles on this subject get it wrong. California did not re-ban surcharging in 2024. It made the way surcharging is normally executed unlawful, which is a different thing with different compliant workarounds.

What SB 478 actually requires

The California Attorney General summarized the intent about as plainly as a regulator ever does: the price a Californian sees should be the price they pay.

The rules

Every mandatory charge must be included in the advertised or listed price.

No drip pricing. You cannot reveal a required fee later in the checkout flow.

Government taxes and certain shipping charges are excluded from the requirement.

It applies to any business transacting with California consumers, online or in person, regardless of size.

Disclosure alone is no longer a defense. A sign reading “a 3% fee will be added to all credit card transactions” satisfied California law before July 2024. It does not now.

The enforcement mechanism is what makes this different from most state pricing rules. SB 478 amended the Consumers Legal Remedies Act, which carries a private right of action.

You are not only exposed to a regulator noticing. You are exposed to your own customers, and to the plaintiffs’ bar that reads pricing pages for a living. Penalties run to $1,000 per violation, and a violation is a transaction, not a policy.

So can a California business recover card costs?

Yes. Three ways, and the difference between them is presentation rather than economics.

Build it into your prices

The simplest and safest route. Raise your listed prices to cover your cost of acceptance and stop treating processing as a separate line item. Nothing appears at checkout that was not on the tag.

Cash discount or dual pricing

Post the card price as your regular price and give cash customers a lower one. The Attorney General’s guidance specifically contemplates cash discounts, and this model is protected federally by the Durbin Amendment in every state. Structure matters enormously here: how to run a cash discount program correctly.

A surcharge added at checkout

This is the one that is now effectively off the table for most California businesses. Calling it a convenience fee does not help, because California regulators and courts look at substance rather than labels. Some commentators read the Attorney General’s guidance to leave room for genuinely avoidable fees in limited circumstances, but that question is unsettled, and unsettled is an expensive place to stand in a state with private enforcement.

The restaurant exception

Days before SB 478 took effect, California enacted SB 1524, carving restaurants and other food and beverage sellers out of the all-in pricing requirement.

Restaurants may continue to list mandatory fees separately, including service charges and mandatory gratuities, provided the charge is clearly and conspicuously displayed with an explanation of its purpose on any advertisement, menu, or other display showing the price of the item. That is a real exemption with real conditions attached. Everyone else in California, including retailers, salons, gyms, hotels, auto shops, and online sellers, follows the standard rule.

Whatever happened to the federal version?

When this article first ran, the open question was whether the FTC would take California’s approach nationwide. Here is how that turned out, because the answer is not what most people expected.

The FTC’s Rule on Unfair or Deceptive Fees took effect on May 12, 2025. But the final rule was dramatically narrowed from what was proposed. The original version reached restaurants, food delivery, car rentals, and much of the rest of the economy. The version that became law covers two industries: live-event ticketing and short-term lodging.

What that means for a California merchant

California remains stricter than the federal standard, and it is the one you have to satisfy. It covers every industry rather than two, and it can be enforced by private plaintiffs rather than only by the government. If you operate in multiple states, California is your ceiling. Building your pricing to satisfy it everywhere is usually cheaper than maintaining two systems.

The question underneath all of this

Let’s be honest about why California merchants started reaching for surcharges in the first place. Processing costs kept climbing and business owners got tired of absorbing them.

So it is worth asking what actually drove those increases. Interchange, the real underlying cost of accepting a card, has barely moved in fifteen years. If the core cost held roughly steady and your bill did not, the growth came from somewhere else on the statement: fees inflated above actual cost, invented fees with official sounding names, markup buried where you cannot see it, transactions downgrading because nobody optimized them.

40%

The average overbilling we find when we audit a merchant statement. Before you restructure your prices to pass costs to customers, it is worth knowing how much of that cost was ever real.

This matters more in California than almost anywhere, because your compliant options all involve putting the cost into a published price. Whatever number you build in becomes visible to every customer who shops your shelf against someone else’s. Getting that number right is not only a compliance question. It is a competitive one.

Frequently asked questions

Is it illegal to charge a credit card surcharge in California?

The surcharge itself is not what the law prohibits. SB 478 prohibits advertising a price that excludes a mandatory charge, which makes the standard practice of adding a percentage at checkout unlawful for most businesses. You can recover card costs by including them in your listed prices or by running a compliant cash discount or dual pricing program.

Can I just call it a convenience fee instead?

No. California looks at substance over form, and a fee tied to paying by card functions as a surcharge regardless of the label on the invoice. Convenience fees are also a narrow, specifically defined category under the card brand rules, and misusing the term creates a second problem on top of the first.

Are cash discounts still legal in California?

Yes. Cash discounting is protected federally and is specifically contemplated in California Attorney General guidance. The requirement is that the posted price is the card price and cash customers receive a discount from it, not the reverse. Post the cash price and add a fee for cards and you are back to a surcharge.

Do restaurants have to follow SB 478?

Restaurants and other food and beverage sellers received an exemption under SB 1524 and may list mandatory fees separately, but only when the charge is clearly and conspicuously displayed along with an explanation of its purpose wherever the item price appears. It is an exemption with conditions, not a free pass.

What are the penalties?

Up to $1,000 per violation, and because SB 478 sits inside the Consumers Legal Remedies Act, private plaintiffs can bring claims rather than only state enforcers. With a violation counted per transaction, a pricing practice applied thousands of times is a materially different exposure than a single fine.

Operating outside California too?

The rules change at every state line, and the card brand requirements sit on top of all of them. Our full guide covers the caps, the notice requirements, the fine schedules, and why not one of the 500 largest companies in America surcharges at all.

Read the full surcharging guide

Before you restructure your prices, check the bill

Send us your most recent processing statement. We will show you exactly what accepting cards costs you today, so whatever you build into your pricing is a real number rather than an assumption. It is free, and it takes about five minutes of your time.

Get My Free Audit

Or call us at 800-672-1292

A necessary note. General information only, not legal advice. California pricing law is actively litigated and interpretations continue to develop, and card brand rules change on their own schedule. Confirm your position with counsel licensed in California before implementing any pricing program. Current as of August 2026.

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