D.C. Attorney General Karl Racine said that “reasonable consumers” would have thought the grocery deliver app’s service fees were tips for shoppers, when they actually went straight to the company.
Washington, D.C., has filed a lawsuit against grocery delivery start-up Instacart, claiming the popular app deceived consumers with service fees.
According to CNN, Washington, D.C., Attorney General Karl Racine’s lawsuit cites an Instacart policy that was in place between September 2016 and April 2018. That policy added a 10% “service fee” on top of the company’s delivery fee.
The service fee, says Racine, could be changed in-app—and because it could be increased, decreased, or removed altogether, many consumers thought it was gratuity for Instacart shoppers.
“To a reasonable customer, this service fee looked like a tip,” the lawsuit states.
Instacart, notes CNN, essentially framed the fee as a way to regularize its employees’ income. In reality, the fee went straight to Instacart and provided no benefit for the service’s shoppers.
Instacart only began to revise its fee structure in April 2018, following backlash from consumers and workers alike. It added a mandatory 5% service fee, then added a suggested tip of 5%–an amount which would actually go directly to shoppers.
Speaking in a statement, Racine said that Instacart tricked customers for two years.
“Instacart tricked District consumers into believing they were tipping grocery delivery workers when, in fact, the company was charging them extra fees and pocketing the money,” Racine said, adding that the company avoided paying tax on its extra collections. “Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes.”
“We filed suit to force Instacart to honor its legal obligations, pay D.C. the taxes it owes, and return millions of dollars to District consumers the company deceived,” he said.
However, Instacart has long maintained that its fee schedule was transparent. The company told CNN Business that it believes “customer transparency is incredibly important,” and that the Instacart app “clearly [indicates] that service fees go towards our operations.”
“We believe the accusations made in this complaint are without merit,” Instacart said in response to Racine’s suit. “We’re disappointed with today’s action by D.C. Attorney General Racine’s office, and we welcome the opportunity to continue an open dialogue on these matters.”
However, Racine’s lawsuit also claims that even after Instacart introduced an in-app tipping option, the company “buried it.
“In this respect, Instacart’s checkout design compounded consumers’ tendency to confuse the service fee with a shopper tip,” the lawsuit says.
CBS News notes that Racine is running a similar lawsuit against food delivery application DoorDash. In that case, Racine has alleged that DoorDash misled customers about tips intended for drivers.