FTC and State Partners Sue Toast Inc. Over Hidden Fees and Subscription Traps

The Federal Trade Commission and nine states have filed a lawsuit against restaurant fintech leader Toast, alleging the company used hidden fees and "subscription traps" to exploit small businesses. For the fintech sector, this marks a significant escalation in regulatory oversight regarding how vertical SaaS providers bundle payment processing and lending with core software services.

What was announced

The complaint, filed by the FTC alongside attorneys general from California, Colorado, Florida, Illinois, Iowa, Nebraska, Oklahoma, and Utah, alleges that Toast saddles restaurants with unauthorized charges and makes cancellation intentionally difficult. Central to the allegations is Toast’s "Pay-as-you-Go" plan, which the FTC claims deceives customers by hiding the true cost of hardware and software through undisclosed transaction fees.

Specific grievances include a $0.99 fee added to online orders over $10 between September 2021 and July 2023, which went directly to Toast rather than the restaurants. The lawsuit also highlights predatory cancellation terms, such as a $150 monthly early termination fee and a requirement for 30 days' written notice that is allegedly obscured during enrollment. In one instance cited in the complaint, a consumer was charged a $5,318.87 early termination fee after four years of service.

Furthermore, the complaint targets Toast Capital, the company’s lending arm. It alleges that if a customer attempts to switch providers, Toast treats the move as a loan default, demanding immediate repayment of the full balance. This effectively uses debt as a mechanism to prevent customers from leaving the platform. Additionally, the FTC claims Toast’s promise of "24/7/365 support" is largely illusory, noting cases where merchants were unable to resolve critical technical issues during peak weekend hours, resulting in thousands of dollars in lost transactions.

The companies involved

Toast Inc. is a prominent provider of cloud-based point-of-sale (POS) hardware and software specifically designed for the restaurant industry. The company has built a comprehensive ecosystem that includes payment processing, inventory tracking, and payroll services. Beyond its core software-as-a-service (SaaS) model, Toast has expanded significantly into embedded finance through Toast Capital, which offers financing products to its existing user base.

The company’s strategy has focused on becoming the "operating system" for restaurants, integrating front-of-house and back-of-house operations. By bundling these services, Toast has positioned itself as a dominant player in the North American hospitality market. However, this integrated approach—where software, payments, and lending are inextricably linked—is exactly what has drawn the attention of regulators, who are now questioning whether such deep integration creates unfair barriers to competition and transparency for small business owners.

What FF News has reported before

FF News has tracked Toast’s aggressive expansion and partnership strategy over the last year. In August 2026, we reported on how Adyen and Toast Expand Strategic Partnership to Transform U.S. Restaurant Payments, a move aimed at scaling their processing capabilities. This followed news that BWH Hotels Selects Toast as Endorsed POS Provider for North American Properties, signaling the company's move into larger hospitality chains. We also covered the ecosystem's growth when eTip Integrates with Toast to Automate Digital Tipping and Instant Payouts for Restaurants. These reports highlight a company that was, until now, seen as a primary driver of digital transformation in the hospitality sector.

What this means

This lawsuit signals a pivot in regulatory focus toward the "vertical SaaS" business model. When a single provider controls the software, the payment rail, and the credit line, the potential for anti-competitive lock-in becomes a systemic risk. The FTC’s focus on "junk fees" and "subscription traps" suggests that the era of opaque pricing in B2B fintech is coming to an end. Other POS providers and embedded finance platforms should view this as a warning: the convenience of an all-in-one platform does not grant license to obscure costs or penalize churn through unrelated financial products. The industry must now grapple with how to maintain high-retention ecosystems without falling foul of consumer protection laws.