The Federal Trade Commission and officials from eight states on Thursday filed a lawsuit against Toast Inc. and affiliated entities. The complaint alleges the restaurant software and fintech company imposes hidden fees, unauthorized fees and unwanted add-ons on restaurants, fails to deliver promised customer support, and makes cancellation difficult.
Toast markets and sells point-of-sale hardware, software and payment processing services to small businesses in the restaurant industry. Its cloud-based products are used to take and manage orders, accept payments and track inventory, among other services. The company sells the software as an annual or biennial subscription billed monthly and also offers financing products called Toast Capital loans.
To obtain the products, restaurants must enroll in auto-renewing subscriptions with an average cost of around $900 per month, depending on terminals and add-on services, according to the complaint. Add-ons include employee timekeeping, payroll processing and filing of payroll taxes. Customers frequently complain of being enrolled in and charged for add-ons without consent, the complaint says.
The complaint alleges that Toast advertises a “Pay-as-you-Go” plan offering hardware and software for $0 per month in exchange for higher per-transaction fees. The Federal Trade Commission and the state co-plaintiffs allege Toast deceives customers by imposing various fees on hardware and software without clear disclosure.
Clients who do not begin processing payments within 120 days must return their hardware or pay its full retail value, according to the complaint. Restaurants that must close temporarily still owe $85 a month for payment processing. Those seeking to cancel face an undisclosed early termination fee of $150 per month for each remaining contract month.
Toast unilaterally added a $0.99 fee to certain online orders above $10 without adequate disclosure or consent from patrons or restaurants, the complaint alleges. The fee applied from Sept. 2021 through late July 2023 and went to Toast rather than the restaurants, on top of other fees.
Cancellation required a multi-step process coordinated across multiple Toast teams, the complaint alleges. Customers had to give 30 days’ written notice of intent not to renew, a step not clearly disclosed at enrollment. Some who gave notice received no response and incurred further charges, while others encountered sales pitches after contacting customer care or live chat.
The complaint describes high early termination fees in some cases. One consumer was charged $5,318.87, which Toast refused to refund, after canceling an account held for four years. Customers with Toast Capital loans who cancel or switch providers are treated as having defaulted and must immediately repay the full outstanding loan balance, creating what the complaint calls a roadblock.
The complaint alleges Toast claimed customers could get help 24 hours a day, seven days a week, 365 days a year. In reality, consumers have difficulty reaching anyone who can provide support at any time of day, according to the complaint. One consumer called on a Saturday and was told the team that could help was not available on the weekend, costing the small business owner thousands of dollars in credit card transactions, while others spent weeks to months trying to resolve issues with no follow-up.
The complaint alleges violations of the Federal Trade Commission Act, the Restore Online Shoppers’ Confidence Act and related state laws.
“Small businesses are the backbone of communities across the country, and they deserve tools and services that are transparent, reliable and truthful,” said Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection.
The Commission voted two to zero to authorize the complaint, which was filed in the U.S. District Court for the Northern District of California. The case will be decided by the court. The agency files such a complaint when it has reason to believe defendants are violating or about to violate the law and a proceeding serves the public interest.
The state plaintiffs are the People of the State of California, acting through the Los Angeles County Counsel and the San Francisco City Attorney, and the attorneys general of Colorado, Florida, Illinois, Iowa, Nebraska, Oklahoma and Utah.