California’s AB 2632 - The Franchise Fee Fight Is Just Beginning

By Sean Goldsmith

AB 2632 lost its franchise language, but it succeeded in putting fee transparency at the center of franchising’s next governance fight.

California AB-2632's franchise language may be gone, but the political signal is now unmistakable: fee transparency has moved from operator grievance to legislative risk.

In franchising, bills rarely matter only when they pass. Sometimes the real signal is that a legislature was willing to entertain the argument at all. California Assembly Bill 2632 began as a pointed attempt to police how franchisors collect, segregate, disclose, and spend fees tied to stated purposes such as advertising, loyalty programs, and technology. As of March 23, 2026, that franchise language has been stripped out through author’s amendments, and the bill has been repurposed into an education and workforce development measure. But anyone in the franchise sector reading that as the end of the story is misreading the market.

The Bill Died, but the Complaint Survived

When Assemblymember Josh Hoover introduced AB 2632 on February 20, 2026, the proposal went straight at one of franchising’s most sensitive pressure points: money franchisees are required to pay for specific uses after the deal is signed. The introduced text would have barred franchisors from using those funds for anything other than the stated purpose, required segregation of those monies from general corporate funds, capped undisclosed administrative allocation at 10 percent, and required annual detailed accounting, alongside a franchisee audit right.

That is not a fringe complaint dressed up as legislation. It is a direct response to a long-running credibility problem in franchising: many operators do not merely dislike fees, they suspect that some systems have become too comfortable treating restricted-purpose funds as flexible corporate capital. California did not invent that distrust. It simply converted it into legislative language.

Why This Hit a Nerve

The broader context matters. In recent months, franchisee-side advocates including the American Association of Franchisees and Dealers and the Coalition of Franchisee Associations publicly backed the bill. Their support was not theoretical. It reflected rising franchisee frustration over whether marketing, technology, and similar system fees are consistently used with enough clarity, discipline, and reporting.

The issue also landed in an environment already shaped by very public disputes over marketing fund stewardship. The most visible recent example came from the Round Table Pizza system, where franchisees challenged FAT Brands over alleged misuse and mismanagement of marketing funds. Whether every allegation ultimately holds up in court is not the only point. The point is that fee governance has become a reputational and capital-markets issue, not just a franchise relations issue. When a franchisor’s fund controls are questioned, operators notice, lenders notice, and legislators notice.

The Political Lesson for Franchisors

The removal of the franchise language looks, on the surface, like a win for those worried about new regulation. It is not that simple. The strategic loss for franchisors would be to assume they escaped scrutiny. In reality, the bill accomplished something consequential even in retreat: it legitimized the claim that fee opacity deserves public oversight.

That matters because once lawmakers, trade groups, and franchisee associations align around a problem statement, the exact vehicle becomes secondary. AB 2632 may no longer be the instrument, but the policy concept is now live. The more interesting development in the latest update is the apparent willingness of the International Franchise Association, the Coalition of Franchisee Associations, and AAFD to work toward solutions outside the bill itself. That could be constructive, but only if the conversation produces more than polished language about fairness and transparency.

Self-Regulation Now Has a Narrow Window

Franchising still has a chance to solve this before California or another state tries again with a sharper bill. But that requires franchisors to stop treating fee reporting as a legal minimum exercise. Operators want line-of-sight. They want plain-English explanations of how funds are collected, what gets allocated to administration, who approves spending, and what measurable system benefit was delivered. They also want confidence that a brand’s financial stress is not quietly changing the purpose of funds they were told were protected.

The uncomfortable truth is that sophisticated franchisees increasingly view vague fund disclosures as a governance tell. If a system cannot explain its money flows cleanly, operators will assume the economics are working better for the center than for the field.

What We Can Learn From This

Franchisors should treat the AB 2632 episode as a warning to upgrade fee governance before legislators do it for them. The practical move is to implement auditable, brand-specific reporting for advertising, technology, and loyalty funds, with explicit overhead disclosures and an independent review mechanism where appropriate. Franchisees and association leaders should use this moment to push for standards that are operationally realistic rather than waiting for a more punitive bill. Investors should also read this as an early signal that opaque fee practices may become a valuation and diligence issue across franchise platforms.