Federal Trade Commission and Eight States File Major Consumer Protection Lawsuit Against Restaurant Software Giant Toast Inc.

In a sweeping legal challenge that could reshape the financial landscape for the restaurant technology sector, the Federal Trade Commission (FTC), joined by a coalition of eight state attorneys general, filed a formal complaint on Thursday against Toast Inc. The Boston-based company, a ubiquitous provider of point-of-sale (POS) hardware and cloud-based software for the hospitality industry, stands accused of engaging in deceptive trade practices, including the imposition of hidden fees, the maintenance of “subscription traps,” and the failure to deliver promised customer support services.

The lawsuit, filed in the U.S. District Court for the Northern District of California, marks a significant escalation in federal oversight of business-to-business (B2B) service providers. Joining the FTC in the action are the attorneys general of California, Colorado, Florida, Illinois, Iowa, Nebraska, Oklahoma, and Utah. The litigation alleges that Toast—a firm that has become a staple for thousands of dining establishments—systematically misled its clients regarding contract terms, resulting in unauthorized charges and long-term financial strain for small businesses operating on thin margins.

The Anatomy of the Allegations

At the core of the government’s complaint is the assertion that Toast utilized deceptive marketing to lure restaurants into long-term, auto-renewing subscription agreements. According to the court filing, these agreements carry an average monthly cost of $900, though the total financial burden often balloons due to bundled add-on services that customers claim were never explicitly requested.

The lawsuit characterizes Toast’s business model as reliant on a “convoluted” cancellation process. Plaintiffs argue that this structure is intentionally designed to prevent or delay the termination of services, effectively locking businesses into unwanted financial obligations for months or even years. Furthermore, the complaint details a pattern of “false claims” regarding product pricing and service guarantees. Specifically, the FTC notes that Toast marketed certain hardware as “free” or low-cost to entice sign-ups, while simultaneously promising “24/7/365” customer support. The lawsuit alleges that neither claim holds up to scrutiny: the hardware often comes with hidden costs, and restaurant owners report frequent inability to reach support representatives during critical hours of operation.

Chronology of the Dispute

The conflict between federal regulators and the tech giant did not emerge overnight. The FTC investigation into Toast’s business practices has been ongoing since mid-2025. According to the company’s own disclosures, it has been cooperating with the agency for over a year, attempting to reach a settlement before the situation escalated to litigation.

The timeline of the current dispute includes:

• September 2021: Toast begins testing a 99-cent fee on online orders placed through its platform at select locations.
• June 2023: The company begins broad implementation of the 99-cent fee on digital orders exceeding $10, a practice that the FTC now argues was intentionally obscured from consumers.
• Mid-2025: The FTC initiates a formal review of Toast’s subscription and fee-disclosure practices.
• October 2026: Following failed attempts at an out-of-court resolution, the FTC and the eight-state coalition file the formal lawsuit.

The “Hidden Fee” Controversy

Perhaps the most public-facing aspect of the lawsuit involves the 99-cent fee imposed on consumers who place online orders through Toast-enabled platforms. The FTC alleges that this fee is a primary revenue generator for Toast, yet the company failed to transparently communicate that the funds were going directly to the tech provider rather than the local restaurant.

By failing to state that it, and not the restaurant, was the beneficiary of these fees, the government argues that Toast violated the Restore Online Shoppers’ Confidence Act (ROSCA) and various state consumer protection statutes. The complaint notes that at least tens of thousands of consumer complaints have been lodged against the company regarding these charges, with many diners assuming the fee was a service charge benefiting the restaurant staff or the establishment’s bottom line.

Toast Inc. Defends Its Operations

In response to the filing, Toast issued a robust defense, characterizing the lawsuit as an “unprecedented” and misguided overreach by federal regulators. The company maintains that its contracts are the result of transparent negotiations with business clients, not deceptive practices.

“Toast has been cooperating fully with the FTC’s review of this matter since mid-2025 and has engaged in good faith throughout, including efforts to reach a resolution short of litigation,” the company stated in an official press release. “The FTC disregarded the information we provided showing the extent to which our restaurant customers negotiate their contracts. We are prepared to defend our business and fight this unprecedented action through litigation.”

Regarding the legal basis of the suit, specifically the application of ROSCA, Toast argues that its agreements are B2B contracts. The company explicitly stated that no court has yet established that ROSCA applies to negotiated business-to-business agreements, suggesting a key point of contention in the upcoming court proceedings will be the scope of the federal law itself.

Economic Context and Industry Implications

The restaurant technology sector has seen explosive growth in the post-pandemic era, with companies like Toast becoming essential infrastructure for processing payments, managing inventory, and handling the surge in digital and delivery-based orders. However, this growth has also led to a more fragmented and complex fee structure for restaurant owners.

For the average restaurant, the POS system is the central nervous system of the business. When that system fails to provide the promised support, or when unexpected fees erode profit margins, the impact is immediate. With industry-wide labor shortages and rising food costs already pressuring the hospitality sector, the allegations against Toast highlight the vulnerability of small business owners to the terms set by their technology providers.

From a regulatory perspective, this lawsuit signals that the FTC is intensifying its focus on the “subscription economy.” Under current leadership, the agency has prioritized the elimination of "dark patterns"—design choices that trick users into doing things they did not intend to do, such as signing up for recurring charges or finding it nearly impossible to cancel a service.

Future Outlook and Market Impact

As Toast prepares to report its third-quarter financial results on Tuesday, the lawsuit adds a layer of uncertainty for investors. The company, which is publicly traded, now faces the dual challenge of managing its operational expansion while dedicating significant resources to a complex, multi-state legal battle.

Legal experts suggest that the outcome of this case could serve as a bellwether for how the FTC approaches other tech-heavy service providers in the B2B space. If the court finds that Toast’s subscription and cancellation policies are indeed deceptive, it could force a major industry-wide shift toward clearer disclosure requirements and simplified cancellation paths.

Conversely, if the court accepts Toast’s argument that these are sophisticated B2B negotiations rather than consumer-facing transactions subject to ROSCA, it could curb the FTC’s ability to intervene in similar disputes between software vendors and their corporate clients. For now, thousands of restaurant owners, consumers, and shareholders are left waiting to see how the judiciary will balance the need for corporate innovation against the mandate for consumer protection in the digital age.