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While SBA Is Investigating GrubHub, Schumer Says More Should Be Done Now To Fix The ‘Glitch’ Ringing Up Millions In False Fees For NYC Restaurants—And Inevitably Their Customers  

Schumer Wants Company To Voluntarily Agree To Eat Any Losses They Blame A Tech Glitch For, Otherwise Asks Feds To Find A Way; If GrubHub Can’t Solve Fee & Websites Issue Voluntarily, Schumer Wants FTC To Get Involved  

Schumer: New Yorkers Are Fed Up With Grubhub Fake Fees

Amidst an all-out food fight between Grubhub, the nation’s largest food-ordering platform, New York-area restaurants and customers of the App that contend bogus fees and fake websites, U.S. Senator Charles Schumer is demanding new action from the company and the feds. Schumer, today, is urging Grubhub to get to the bottom of the fee and website mess, asking the federal Small Business Administration to provide a full report to Congress on the situation and urging the Federal Trade Commission (FTC) to be ‘at the ready’ to act. Further, Schumer wants the feds to find a way to force the company, not the customers or restaurants, to eat any loss. Schumer also says Grubhub needs to be more transparent with restaurants and their customers regarding their fee structure and prospecting methods in general. Schumer was joined by the New York City Hospitality Alliance and the New York State Restaurant association, along with local restaurant owners.

“Bogus fees of any kind add up fast—a dollar or two here and there—and before you know it, a big company like Grubhub has millions of dollars they really never earned,” said U.S. Senator Charles Schumer. “So, today, I am putting in my own order at Grubhub and asking them to eat any fees they wrongfully charged restaurants or even customers. The bottom-line is that the company must take a hard look at their fee structure and prospecting algorithm which they have blamed, in part, for this mess and make a real effort to fix the problem while fully cooperating with the feds. Bogus fees aren’t just a burden to our local restaurants, but it is the everyday New Yorker who can wind up eating the cost when the restaurant they love has no choice but to serve up the added fees on their menu in the form of increased price.”

Schumer pointed to a handful of cases, in which local restaurants were charged by Grubhub for calls that did not even result in an order. For example, a Brooklyn Italian eatery was charged more than $9.00 for a customer call regarding gluten-free pasta—but no order was placed. Another NYC restaurant reported that it was charged $9.00 for telling a customer that the restaurant was closed for a private event—again, no order was placed. Hundreds of $9.00 calls can add up to a pretty hefty sum, as another restaurant owner estimated that he is being charged $2,000 a year for customer calls about the menu, for just one of his five restaurants.

Schumer, today, said Grubhub owes it to New Yorkers to fix the mess the company is blaming, in part, on an algorithm. He is also asking the federal Small Business Administration to deliver a full report to Congress. The SBA is concerned with restaurants’ ability to pay back loans guaranteed by the agency because of Grubhub’s potentially unwarranted fees, which can sometimes be as high as 30%, Schumer explained. The SBA has guaranteed more than 900 loans to restaurants in the New York-area, totaling about $353 million, according to data. And Schumer wants their local probe of Grubhub to dig as deep as possible.

Disgruntled New York restaurant owners showed up en masse to a New York City Council hearing on June 27th to discuss Grubhub’s overcharging. Attendants included the owners of 5 Napkin Burger, who hosted Schumer’s event.  

Allegations against Grubhub do not stop at overcharging. In the June 27th hearing, Grubhub was accused of “cybersquatting,” the creation of websites which appear to be the proper websites of restaurants but are actually controlled by Grubhub, without the restaurants’ approval. Over 34,000 fake Grubhub-controlled websites have been found, and thousands more have been registered by New York-based Seamless, which merged with Grubhub in 2013. The sites appear to be the proper ones, controlled by the actual restaurants, aside from a notice at the bottom about Grubhub-ownership. The Grubhub-controlled sites also have been found to inflate the prices of specific menu items from the actual restaurant prices. 

Schumer’s push includes getting to the bottom of the fake websites, too, and he says if imminent fact-finding warrants a stronger response, he will ask the Federal Trade Commission (FTC) to get involved.  

“Fake fees for restaurants that can be served to customers leave a bad taste in everyone’s mouth,” added Schumer. “And fake websites just add insult to injury, confusing the customers and inevitably raising the prices of menu items when unmanageable costs are passed right on to them."

Grubhub is a delivery service that works with restaurants to provide delivery services to those that do not offer them, and facilitate food delivery for those that do. Users can make a Grubhub account and use that account to order and pay for delivery from any of Grubhub’s 115,000+ partner restaurants. Founded in 2004, Grubhub has expanded from Chicago to over 2,200 American cities. In 2013, Grubhub merged with New York based delivery service Seamless, and has maintained a considerable amount of the delivery app market share since. New York has consistently been Grubhub’s biggest market.

Schumer’s letter to Grubhub CEO, Matt Maloney and the Small Business Administration appears below:

Dear Mr. Maloney:

I write to urge you to take swift action to address the unwarranted fees that Grubhub is allegedly charging restaurants, including New York City restaurants with loans through the U.S. Small Business Administration (SBA).

Recent reports have raised concerns that Grubhub is charging restaurants commission fees for calls placed through its application or website without verifying whether these calls generate actual orders for food. As a result, numerous small business owners have complained that they were assessed “fake” fees that have hurt their bottom-line. I worry fees of this kind hurt everyday customers, too. In addition, restaurant owners have also complained of Grubhub’s practice of creating “copycat” websites that, in some instances, compete with and rank higher in internet search results than a restaurant’s own website.

I share the aforementioned concerns of New York restaurant owners and ask that Grubhub take immediate action to address these problems, investigate any unwarranted fees and ensure a timely refund. The bottom-line is that Grubhub must provide more transparency to restaurants and customers regarding its fee structure. Providing this transparency would align with the SBA’s position that small business owners need to be informed about the costs and risks associated with their business operations. I also ask that Grubhub provide public assurances that its practice of creating “copycat” websites for its restaurant partners is in compliance with the Anti-cybersquatting Consumer Protection Act, which I supported.

I understand that senior SBA officials have indicated that they are reviewing fee issues related to third-party delivery platforms, including whether these issues are national in scope and the impact on restaurants with small business loans. Given the importance to small business owners in New York and across the nation, I ask that you fully and expeditiously cooperate with SBA’s probe, which must swiftly conclude its own work and provide Congress with its findings to determine what, if any, policy response may be necessary.

Thank you for your attention to this important matter.


Charles E. Schumer

cc:      Chris Pilkerton, Acting Administrator

           U.S. Small Business Administration

cc:     Joseph Simons, Chairman, Federal Trade Commission