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The Federal Trade Commission on Monday reached a $140 million settlement with Grubhub, which it had accused of using hidden fees to mislead customers about the true costs of delivery, among other deceptive practices.
Grubhub will pay only $25 million of that amount, which it said was all it could afford. It also denied the FTC’s allegations.
Regardless, it was the agency’s largest judgement in years, and possibly the largest ever against a food delivery app. And it should serve as a warning to Grubhub’s larger competitors, DoorDash and Uber Eats, which, for all intents and purposes, are engaged in similar practices.
The core of the FTC’s multipart complaint against Grubhub has to do with hidden fees. Grubhub, the agency said, will advertise one price to customers, then tack on an additional service fee at checkout, after the customer has already made up their mind to order.
As the FTC explains in its lawsuit, Grubhub’s separate delivery and service fees were once a single fee that Grubhub decided to split in two. The total charge was the same, but customers only saw part of it up front, and so were more likely to complete their order.
This “pricing shell game,” as a former Grubhub executive called it, indeed led to a “significant increase in conversion … far larger than any other [test] we have executed and there is NO change to actual diner fees.”
These deceptive fees are known as junk fees, and they often more than doubled the price that Grubhub's customers were expecting to pay, the FTC said.
As part of the settlement, Grubhub will be required to both disclose the true cost of its service and stop adding junk fees to orders. The more transparent pricing could presumably make customers think twice about ordering, because they’ll know the full cost from the start.
The question now becomes, will DoorDash and Uber Eats do the same?
Currently, when a customer opens either of these delivery apps, they will see a selection of nearby restaurants, with a delivery fee listed below each. They can click on a restaurant and browse the menu, where they’ll see prices listed for each item. They can then add items to their cart. But it’s not until they proceed to checkout that the full scope of what they will owe becomes clear. There is the price of the item and the delivery fee, which they had seen before, as well as a service fee that was not previously disclosed.
Those sound an awful lot like junk fees. And it’s not as if the other big delivery services are in the clear. On the day the settlement with Grubhub was announced, the FTC aired new regulations aimed at eliminating the use of junk fees by hotels and live-event companies. The guidelines had been expected to cover restaurants and other businesses as well, but the FTC opted to narrow its focus, to the surprise of many.
But it left open the possibility of going after individual companies that try to slip charges past customers. “The FTC will use its law enforcement authority to continue to rigorously pursue bait-and-switch pricing tactics, such as drip pricing and misleading fees, in other industries through case-by-case enforcement,” the agency said.
DoorDash and Uber Eats' fees have drawn the attention of federal officials before. In April, a group of senators including Elizabeth Warren sent a letter to the companies' CEOs accusing them of taking advantage of consumers with hidden fees. (A DoorDash spokesperson at the time said the letter “completely misrepresents how DoorDash operates.”)
But, for whatever reason, DoorDash and Uber Eats have thus far avoided the same fate as Grubhub.
Asked about this discrepancy on Tuesday, an FTC spokesperson responded: “As a matter of policy, we can’t comment on particular companies outside the context of a law enforcement investigation,” said Jay Mayfield, senior public affairs specialist, in an email. “But the Grubhub order reaffirms that all companies must be honest about how much their services cost—there is no exception for gig platforms.”