The United States Federal Trade Commission (FTC), along with eight states including Florida, has filed a federal lawsuit against Toast Inc. on Thursday. Toast, a company providing billing and management systems for restaurants, is accused of imposing undisclosed charges, activating unauthorized services, and complicating contract cancellations.
Filed in California, the lawsuit claims that some customers faced penalties of $150 for each remaining month on their contract when they attempted to terminate the service. One customer reported a $5,318.87 early termination fee which the company allegedly refused to reimburse.
The authorities argue that restaurants are compelled to sign up for auto-renewal subscriptions averaging $900 monthly, with some clients enrolled in additional services like payroll processing and schedule management without consent.
Concerns Over "Pay-as-you-Go" Plan
Toast's "Pay-as-you-Go" plan, which advertises equipment and software at "zero dollars per month," has also come under scrutiny. According to the FTC, while no upfront fees are charged, higher transaction fees are applied. Customers who don't start processing payments within 120 days must return the equipment or pay its full price. Restaurants temporarily ceasing operations may incur an $85 monthly inactivity fee.
The alleged hidden fees extend beyond the restaurant owners themselves. From September 2021 to July 2023, Toast reportedly added 99 cents to certain online orders over $10 without the knowledge of the restaurant, with the funds going directly to the company.
Challenges in Canceling Contracts
Another contentious issue is contract cancellation. The lawsuit states that Toast requires a written notice of intent not to renew at least 30 days before the expiration. Customers aiming for early contract termination might face penalties, and some reported lengthy procedures and incentives aimed at discouraging them from leaving the service.
For those utilizing payroll services, a non-renewal notice must be given at least 90 days in advance.
The lawsuit further claims that restaurants with Toast Capital loans may be forced to settle their outstanding debt immediately if they cancel the service or switch providers without prior authorization.
Technical Support Allegations
The FTC also challenged Toast's promise of continuous technical support. A restaurant owner reported losing thousands in transactions after seeking assistance on a Saturday, only to find that the support team was unavailable over the weekend.
"Toast failed to honor several of its commitments," stated Christopher Mufarrige, Director of the FTC's Consumer Protection Bureau, while questioning the alleged practices.
Toast, however, rejected the accusations and vowed to defend its stance in court. The company argued that the FTC is attempting to apply an online subscription law to business-to-business contracts, which it considers inappropriate.
The case remains under judicial review.
Frequently Asked Questions About the Toast Lawsuit
What are the main allegations against Toast Inc.?
Toast Inc. is accused of imposing hidden charges, activating services without authorization, and making it difficult for restaurants to cancel contracts.
How does the "Pay-as-you-Go" plan affect customers?
While the plan advertises no monthly fees, it imposes higher transaction fees and requires customers to start processing payments within 120 days or face additional costs.
What are the potential penalties for early contract termination?
Customers attempting to end their contracts early may face penalties of $150 per remaining contract month, and some reported substantial early termination fees.
What issues have been reported regarding technical support?
A restaurant owner claimed significant financial losses due to unavailable technical support over the weekend after requesting assistance.