Toast Merchants Consistently Violate Surcharging Rules. Who Takes Toast to Court?

During the pandemic consumers everywhere became accustomed to seeing more fees from their restaurants. By and large, consumers were okay with paying these fees as they supported their local eateries who were sinking from fickle labor, overreaching government regulation, and a massive shift to off-prem channels that came with much higher and unstable COGS.

The Today Show even picked up the trend.

But things have changed a lot in 18 months.

Inflation is ripping through the economy and affecting consumers who might have otherwise ignored the dining fees of old.

Which is why it shocks us when credit card processors, like Toast, so greedily push their merchants to surcharge their own customers.

To lubricate the transaction, Toast offers the merchant a remarkably low discount on their already-overpriced processing fees.

Toast, being the good actors that they are, only stands to 4x their processing margin if the merchant agrees to surcharge, often literally making more margin on the merchant than the merchant even makes for themselves.

What a win-win partner that Toast.

Yet as the below example will show you, Toast is not complying with Visa and Mastercard surcharging rules. Or at least Toast’s merchants are not complying with the rules; is that ultimately Toast’s responsibility?

Given that Toast makes more money than their merchants in a surcharge scheme, and they’re actively incentivizing merchants to do it, we’d say yea, Toast bears a lot of the blame here.

Before we begin, let’s cover the card network rules for surcharging. Keep in mind that these are not some federal or state statutes, but like PCI (which is a joke) are rules the payments ecosystem created to look after its own.

For Visa and Mastercard, surcharging rules exist to ensure their survival: if merchants started charging card carrying customers 10% to make a card payment, you can bet your sweet ass consumers would find another way to pay.

Of course cash transactions come with their own perils, like an estimated 8% theft, but consumers would definitely seek out alternatives to card payments.

So merchants cannot add more than a 4% surcharge.

Merchants also must let customers know there’s a surcharge coming before they get the bill.

A merchant must provide clear disclosure to the merchant’s customers of the merchant’s surcharging practices at the point of interaction which shall include the amount of the surcharge and the dollar amount of the surcharge on the transaction receipt provided by the merchant to its customers.

https://www.mastercard.us/en-us/business/overview/support/merchant-surcharge-rules.html

This exists to prevent people from getting pissed after they’ve spent a lot of money at a business only to be faced with a large premium to use their card. Not exactly a winning position in the customer experience deparment.

30 days prior to surcharging, the merchant must alert their acquirer and the card networks. Acquirers love surcharging and are often pushing merchants to do it, but we’d venture to guess that the networks records show only a handful of merchant surcharging notifications.

The heads up just doesn’t happen.

Lastly, and most germane for our following example, merchants are NOT allowed to surcharge debit cards.

Pursuant to a settlement of the U.S. merchant class litigation, Mastercard modified certain rules and business practices to permit U.S. merchants to apply an extra checkout fee, also known as a surcharge, to customers who pay with Mastercard-branded credit cards. The rule change permitting such surcharging went into effect on January 27, 2013. These fees are not allowed on Debit Mastercard or Mastercard prepaid cards.

The ability to surcharge only applies to credit card purchases, and only under certain conditions. U.S. merchants cannot surcharge debit card or prepaid card purchases.

https://usa.visa.com/dam/VCOM/download/merchants/surcharging-faq-by-merchants.pdf

Now for the evidence.

Below is a Toast merchant, though we’ve kept their identity confidential.

This Toast merchant is adding a 3% surcharge.

They don’t provide any customer warnings for the surcharge before getting the bill.

More concerningly, they surcharged EVEN AFTER PAYING WITH DEBIT CARD.

This is a huge problem.

Notwithstanding damages to the networks, how is surcharging not a concern for the FTC and CFPB?

Isn’t this a consumer hardship?

Isn’t this the same shenanigans that swayed the hands of Canadian, European, and Australian legislators to put the clamps on interchange rates?

if Toast has 50,000 merchants and even a small percentage are surcharging incorrectly, that’s a lot of consumer damages.

Someone needs to take Toast to task for this.

We get that a lot of processors facilitate this kinda crap, but Toast is large enough – and greedy enough, frankly – that they’ve painted a bullseye on their backs.