Instacart settles with FTC over deceptive practices but still faces questions about pricing

Instacart will pay $60 million in refunds to customers as part of a settlement with the Federal Trade Commission over allegations of deceptive business practices, the agency announced Thursday.

The San Francisco-based grocery delivery service was accused of misleading customers about its delivery fees, subscription model, and satisfaction guarantee policies. According to the FTC, Instacart advertised free deliveries without clearly disclosing mandatory service fees that could add up to 15% to customers’ orders.

The commission also found that Instacart failed to adequately inform customers that they would be automatically charged membership fees after free trials of its Instacart+ program ended. The subscription service, which costs $99 annually, promises free delivery on most orders. The FTC reported that hundreds of thousands of customers were charged for memberships from which they received no benefits or refunds.

“The FTC is focused on monitoring online delivery services to ensure that competitors are transparently competing on price and delivery terms,” said Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection.

Another issue highlighted in the settlement concerns Instacart’s “100% satisfaction guarantee.” The FTC alleged that customers experiencing service problems like late deliveries or unprofessional conduct were typically offered only small credits toward future orders rather than actual refunds.

Instacart has denied all allegations of wrongdoing but agreed to the settlement to move forward and focus on its business operations. The company’s shares fell nearly 2% in after-hours trading following the announcement.

“Instacart is proud to offer a transparent, affordable and consumer-friendly service. We provide straightforward marketing, transparent pricing and fees, clear terms, easy cancellation and generous refund policies – all in full compliance with the law and exceeding industry norms,” the company said in a statement.

This settlement comes at a challenging time for Instacart, which is facing additional scrutiny over its pricing practices. Earlier this month, a report by Consumer Reports and two progressive advocacy groups – Groundwork Collaborative and More Perfect Union – found inconsistencies in how Instacart prices identical grocery items, even when online shoppers were ordering from the same stores at the same time.

The report suggested that Instacart might be employing artificial intelligence tools to increase consumer costs, raising further questions about the company’s transparency. When asked whether it would investigate these pricing allegations separately, the FTC declined to comment, citing longstanding policy, but acknowledged concern about the reports.

“Like so many Americans, we are disturbed by what we have read in the press about Instacart’s alleged pricing policies,” FTC spokesperson Joe Simonson said.

Instacart noted that the settlement does not contain allegations related to its pricing practices, although the FTC had requested information about its pricing tools during the investigation. The company emphasized that it is not a retailer and does not control base prices listed on its platform.

In a blog post responding to the Consumer Reports findings, Instacart explained that retailers often test different price points to gauge consumer sensitivity to price changes. The company denied using customer information such as income, zip code, or shopping history to set prices.

Instacart also claimed it encourages retail partners to maintain consistency between in-store and online prices. Some major retailers including Lowe’s, Ulta Beauty, and Best Buy already follow this practice, according to the company, though many others do not.

The settlement with the FTC represents one of the most significant regulatory challenges for Instacart, which went public in 2023 and has become a major player in the grocery delivery market during and after the COVID-19 pandemic. The company’s response to these regulatory and consumer trust issues may significantly impact its future growth in an increasingly competitive delivery market.