The Federal Trade Commission has joined eight states in a lawsuit claiming the popular restaurant management software platform and fintech company Toast engages in business practices that violate federal and state law. According to the FTC, restaurants using Toast are hit with hidden and unauthorized fees as well as unwanted add-ons. It also contends that Toast fails to deliver promised customer support and makes it difficult for restaurants to cancel its services.
According to the complaint filed Oct. 29 in the U.S. District Court for the Northern District of California, the FTC has received tens of thousands of customer complaints about problems with Toast’s products. Almost 200,000 restaurants use Toast’s point-of-sale hardware and software to take orders, process payments, and help manage other parts of their businesses. The company sells its software as a subscription service, billing customers monthly.
In announcing the lawsuit, the FTC said the company repeatedly made false claims to convince restaurants to enroll in its subscription services and failed to respond to customer support calls as promised. Additionally, the company imposes a series of hurdles making cancellations difficult, and those hurdles often result in customers incurring additional charges. The complaint also claims Toast hid a 99-cent order processing fee it charged restaurant patrons on certain online orders of more than $10 placed through its platform from 2021 to 2023.
Joining the FTC in filing the complaint against Toast were the attorneys general of Colorado, Florida, Illinois, Iowa, Nebraska, Oklahoma, and Utah. California joined by and through Los Angeles County counsel and the San Francisco City Attorney.
Claims Federal and State Law Violations
The complaint alleges that Toast’s actions violated the FTC Act, the Restore Online Shoppers’ Confidence Act, and several related state laws. The plaintiffs seek a permanent injunction preventing Toast from violating any of the listed federal or state laws and any monetary or other relief the court has the power to grant. They also seek civil penalties, damages, restitution, and/or forfeitures for each violation of state law as well as the attorneys’ fees, costs, and expenses permitted under state law.
Toast said it has cooperated fully with the FTC’s review of its business practices and has sought to resolve the issues addressed in the complaint without resorting to litigation. It noted that the investigation demonstrated the company’s commitment to providing innovative solutions to restaurants and that the FTC disregarded information Toast has provided regarding its contract negotiations with clients. “We are prepared to defend our business and fight this unprecedented action through litigation,” it said.
Customers Face Unexpected Fees
To use Toast’s products and services, restaurants must purchase auto-renewing subscriptions that often include add-on services, like timekeeping and payroll processing, which increase the subscription cost. The complaint says the FTC has received frequent complaints that Toast customers have been enrolled in subscriptions without their consent and end up paying for unauthorized charges.
The complaint also claims that Toast advertises a “pay-as-you-go” plan where customers receive the company’s hardware and software for free in return for paying higher transaction fees on payments processed through Toast. The FTC and the state co-plaintiffs contend that the company deceives customers by failing to clearly disclose the types of fees it charges on the cost of the hardware and software. For example, the company fails to disclose to its customers that:
- Restaurants that don’t begin processing payments through Toast within 120 days of purchasing their subscription must return their hardware or pay the full retail price.
- Restaurants that close temporarily must still pay $85 a month for Toast’s payment processing services.
- Canceling a Toast subscription requires that customers pay an early termination fee of $150 per month for each month remaining on their contract.
Subscription Cancellations Unnecessarily Difficult
Many Toast customers incurred months or years of unwanted charges because the company instituted a counterintuitive, multi-step cancellation process that requires multiple teams within Toast to complete, the complaint claims. To cancel their subscription, customers must first provide Toast with 30 days’ written notice that they don’t intend to renew. However, Toast does not clearly disclose the 30-day notice requirement to customers when they enroll.
Even when customers provide timely written notice to Toast, the complaint alleges that multiple customers reported the company failed to respond and incurred additional charges. Other customers who contacted Toast through its live chat feature were asked why they wanted to cancel and received sales pitches meant to dissuade them from canceling.
In some cases, Toast impeded customer subscription cancellations by charging high, unexpected early termination fees, the complaint states. It noted that one customer who canceled its Toast account after four years claimed it was charged an early termination fee of more than $5,000 that the company refused to refund.
Toast Failed to Provide Promised Support
According to the complaint, almost every page of Toast’s website features a variation of its claim that customers will receive support from the company 24 hours a day, seven days a week. When restaurants enroll in Toast, they are also told they will receive support “24/7/365” as a feature in every subscription package. However, customers have reported that it is difficult to reach anyone at the company at any time of day.
One customer cited in the complaint said they contacted Toast’s customer support on a Saturday and were told help was not available on weekends. As a result, that customer lost thousands of dollars in credit card transactions they were unable to process through the Toast platform. Other customers have reported spending weeks or months trying to resolve problems with Toast’s customer service representatives and receiving no follow-up or real solution.
The Takeaway
Toast is a rapidly growing company, and a successful lawsuit finding its business practices violate federal or state law could limit its future growth by forcing it to change how it markets its products or pay substantial fines. Unfortunately for Toast’s customers, relief from the company’s allegedly illegal practices may be a long time coming, if it comes at all. Litigation could take years, and it is unclear as to whether the courts would require Toast to change its business practices, offer refunds, or provide other compensation.
Many small restaurants go out of business within a few years, which means many that claimed to have been harmed by Toast’s business practices may not survive long enough to benefit from the FTC’s actions.
