Toast FTC Lawsuit Targets Fees, Cancellations and a Toast Capital Loan Term
The Federal Trade Commission and a group of state and local prosecutors sued Toast, the restaurant point-of-sale and payments company, accusing it of hidden fees, unwanted add-ons, misleading "$0" pricing and a cancellation process that kept restaurants paying.
Most of the case is about subscriptions and fees. But one allegation should get the attention of anyone who funds small businesses. According to the complaint, Toast Capital loan agreements treat a restaurant's switch to another point-of-sale provider as an event of default, a term the plaintiffs say borrowers weren't told about when they applied.
These are allegations and Toast says it will fight the case.
Who sued and where
The complaint was filed Oct. 29 in the U.S. District Court for the Northern District of California, San Francisco Division, as FTC v. Toast, Inc., No. 3:26-cv-12705. The FTC's commissioners voted 2-0 to bring it.
The FTC is joined by the attorneys general of Colorado, Florida, Illinois, Iowa, Nebraska, Oklahoma and Utah, along with the People of the State of California, represented by the Los Angeles County Counsel and the San Francisco City Attorney. That's why some outlets count seven states and others count eight.
Toast, Inc. is named along with four affiliates: Toast Processing Services, Stratex HoldCo, Strategy Execution Partners and xtraCHEF. The plaintiffs bring claims under Section 5 of the FTC Act, the Restore Online Shoppers' Confidence Act (ROSCA) and state consumer protection laws.
What the government alleges
According to the complaint, Toast advertised hardware for "$0" and software for "$0/month" under its Pay-as-you-Go plan, in exchange for higher per-transaction processing fees, while the fine print and merchant agreement carried costs restaurants didn't expect. Among them, the plaintiffs allege:
Restaurants that didn't start processing within 120 days had to return the hardware or pay its full retail value.
An $85 monthly fee kept running for restaurants that closed temporarily.
Cancelling early triggered a termination fee of $150 for each month left on the contract. One customer was charged $5,318.87 after four years with Toast, the FTC says.
Restaurants were enrolled in, and billed for, add-ons such as timekeeping, payroll and payroll tax filing without their consent.
The plaintiffs also say Toast charged diners a $0.99 fee on online orders over $10 from around September 2021 until late July 2023. The fee was listed under taxes and fees, went to Toast rather than the restaurant and has not been refunded, according to the complaint.
On service, the complaint takes aim at Toast's "24/7/365" support promise. It says customers often couldn't reach anyone who could fix their problem, and the FTC cites one owner who called on a Saturday and was told the team didn't work weekends.
Cancelling was its own hurdle, the plaintiffs allege. Subscriptions auto-renew for one- or two-year terms, require 30 days' written notice before the term ends, and core subscriptions can't be cancelled online. The complaint says the line that handles cancellations is open only on weekdays from 9 a.m. to 5 p.m. Eastern, and that "at least tens of thousands" of customers have complained to the FTC, online or to Toast directly.
"Toast failed to honor a number of its promises and instead imposed hidden fees, unauthorized charges and subscription traps." Christopher Mufarrige, Director, FTC Bureau of Consumer Protection
Loan Default Issue
Toast Capital, launched in 2019, offers loans to restaurants that already use Toast. The complaint says borrowers can't change point-of-sale providers without Toast Capital's advance permission, which it can withhold at its sole discretion. Switching without that permission is an "Event of Default." The plaintiffs say this restriction is not disclosed at any point in the loan application.
The FTC's announcement spells out the effect. If a restaurant cancels or changes providers, Toast treats it as a loan default and requires immediate repayment of the outstanding balance. That leaves a borrower choosing between subscription charges it no longer wants and accelerated loan repayment on top of termination fees, the FTC says.
The financing side matters to Toast's business. According to the complaint, about 82% of Toast's $6.153 billion in 2025 revenue came from financial services, meaning payment processing and loans. Toast's latest quarterly filing says it buys loans from its bank partner, and it held $70 million of them for investment at Sept. 30, up from none at the end of 2025.
In the complaint, the loan term sits inside the plaintiffs' broader case that Toast made it hard for restaurants to leave.
Does ROSCA cover business customers?
ROSCA is the federal law that governs "negative option" sales online, the auto-renewing subscriptions that keep billing until the customer cancels. It requires clear disclosure of the terms before billing information is collected, the customer's express informed consent and a simple way to stop recurring charges. The FTC uses it often: the law firm Hinch Newman counted about 50 FTC ROSCA actions as of December 2025, according to American Banker.
Toast's defense starts there. Its customers are businesses that sign negotiated contracts, the company argues, not consumers clicking through a checkout.
"No court has held that ROSCA applies to negotiated business-to-business agreements, and we don't believe it applies here." Toast, statement on Oct. 29
Toast's statement adds that applying ROSCA this way "has the potential to rewrite the laws of commercial contracts." The complaint, for its part, describes many of Toast's customers as small business owners and treats them as consumers under the law.
How the court answers that question could reach well beyond restaurant software. If ROSCA covers small businesses that sign up online, auto-renewing products sold to merchants, from software to payment services, could face the same disclosure, consent and cancellation rules as consumer subscriptions.
What the plaintiffs want
The complaint seeks a permanent injunction, a monetary judgment and civil penalties. It doesn't name a dollar figure. The state laws it relies on carry their own penalties, according to DLA Piper: up to $10,000 per willful violation in Florida ($15,000 where seniors are affected), up to $50,000 in Illinois where intent to defraud is shown, $10,000 per violation in Oklahoma and $2,000 per act in Utah.
Toast's response
Toast said it "strongly disagree[s]" with the allegations and is "prepared to defend our business and fight this unprecedented action through litigation." It says it has cooperated with the FTC's review since mid-2025, that the agency disregarded information showing how much its restaurant customers negotiate, and that nothing about the suit changes its customer service, pricing or support.
On Toast's third-quarter earnings call on Nov. 3, CEO Aman Narang said, "We have a lot of confidence in our business practices and are ready to defend ourselves," according to PYMNTS. Toast reported about 8,500 net new locations in the quarter, for roughly 189,000 in total, and said its annualized recurring run-rate grew 24% to $2.5 billion. The complaint puts Toast's footprint at 156,000 locations.
Why it matters for funders, ISOs and embedded lenders
Toast sells restaurant software, but the conduct in this complaint will look familiar to anyone who funds, brokers or embeds small business capital.
Switching and default clauses: many merchant cash advance agreements and embedded financing products bar a business from changing its processor or deposit account without consent. The Toast complaint takes issue with whether that kind of term was disclosed at application, not only in the final agreement.
Fees in the fine print: termination fees, renewal terms and inactivity charges that sit deep in a long agreement are a specific target here.
The exit: a cancellation process that runs through written notice and a weekday-only phone line drew as much attention as the fees.
Marketing claims: "$0" and "24/7" promises are being measured against what customers actually got.
The states: Florida and Utah, two of the plaintiffs, already have commercial financing disclosure laws. This case shows their attorneys general will also use general consumer protection laws on behalf of business customers.
None of this is legal advice, and nothing in the case has been decided. But it shows clearly where regulators are looking.
Toast FTC Lawsuit - What happens next
The case is at the pleading stage. Toast's formal response is the next step, and its ROSCA argument could be an early fight. No hearing dates had been reported as of Nov. 10. Funder Intel will follow the filings and update this story as the case moves.