What's Happening?
The Federal Trade Commission (FTC) and attorneys general from several states, including Colorado, Florida, Illinois, Iowa, Nebraska, Oklahoma, and Utah, along with Los Angeles County Counsel and the San Francisco City Attorney, have filed a lawsuit against
Toast. The lawsuit alleges that Toast engaged in deceptive advertising practices, concealed fees, and created barriers to cancellation for its restaurant technology services. Specifically, the complaint challenges Toast's '0' hardware advertising and '24/7/365' customer support promises, claiming that customers faced undisclosed costs and inadequate support. It also highlights allegedly unauthorized subscription add-ons and a $0.99 online-order fee imposed on restaurant patrons without proper disclosure or consent. Furthermore, the lawsuit states that customers attempting to cancel services encountered difficulties, including requirements for written notice, discussions with retention staff, and navigating internal processing while charges continued. Some customers reportedly faced unexpected termination fees, and Toast Capital borrowers allegedly had to immediately repay outstanding loan balances upon canceling or switching providers.
Why It's Important?
This lawsuit is significant as it indicates a growing focus by federal, state, and local regulators on consumer protection within the business-to-business (B2B) sector. The allegations against Toast, a prominent provider of restaurant technology, suggest that companies offering services to other businesses are increasingly subject to the same scrutiny traditionally applied to consumer-facing entities. The case could set a precedent for how B2B advertising, fee structures, and cancellation policies are regulated, potentially leading to stricter requirements for transparency and ease of service termination across various industries. For businesses, particularly small and medium-sized enterprises that rely on such technology platforms, this action could result in greater protection from unexpected costs and difficult contract exits. Conversely, technology providers may need to re-evaluate their sales and contract practices to ensure compliance and avoid similar legal challenges, impacting their operational costs and business models.
What's Next?
The lawsuit against Toast is currently at the complaint stage. The FTC is seeking a permanent injunction and monetary relief under Sections 13(b) and 19 of the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA). The state attorneys general are pursuing civil penalties, restitution, damages, and attorneys' fees. While a total monetary demand has not been specified, the outcome could include significant financial penalties for Toast and mandated changes to its business practices. This case aligns with a broader pattern of enforcement actions against companies like Seek Capital, First American Payment Systems, and Riverside Payments, which faced similar allegations regarding misleading promises, unexpected fees, and cancellation difficulties. In-house counsel for B2B providers are advised to review their customer relationship processes, from sales promises to billing and cancellation procedures, to ensure compliance and mitigate legal risks.
Beyond the Headlines
The legal action against Toast highlights a critical shift in regulatory oversight, extending consumer protection principles to the B2B market. This development underscores the idea that businesses, especially smaller ones, can be vulnerable to deceptive practices in ways similar to individual consumers. The case also touches upon the ethical implications of contract design, particularly regarding hidden fees and complex cancellation processes that can trap businesses in unfavorable agreements. If successful, this lawsuit could foster a more equitable business environment, where transparency and fair dealing are prioritized, potentially leading to a re-evaluation of standard contract terms and conditions across the B2B technology sector. It also emphasizes the importance of clear communication and accessible customer support in maintaining trust and preventing legal disputes.
