Instacart to pay $60 million in FTC settlement, end AI-based price tests

Instacart will pay $60 million to settle a Federal Trade Commission lawsuit after being accused of misleading customers with deceptive tactics.

The agency accused the grocery delivery service of deceiving consumers with false advertising, failing to provide refunds and engaging in an unlawful subscription enrollment process. In turn, this harmed shoppers and raised the cost of grocery shopping, the FTC said.

Instacart was accused of falsely advertising free delivery to consumers on their first order because of a mandatory service fee for grocery deliveries, which adds as much as 15% to the order cost.

Many Instacart shoppers are unknowingly a part of widespread artificial intelligence-driven pricing that prices identical products differently from one customer to the next — sometimes by as much as 23%, according to Consumer Reports.

The FTC also took issue with Instacart’s “100% satisfaction guarantee” business model, as the agency said that late deliveries or unprofessional service are not typically offered full refunds. Instacart hid the refund option, the FTC said, leading consumers to erroneously believe they could receive only a credit toward a future order rather than a refund.

Instacart failed to clearly disclose terms relating to its Instacart+ subscription program, the FTC said, as its free trial did not adequately disclose that consumers would be charged for memberships at the end of their trials.

“Instacart misled consumers by advertising free delivery services — and then charging consumers to have groceries delivered — and failing to disclose to consumers that signed up for a free trial that they would be automatically enrolled into its subscription program,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said in a release. “The FTC is focused on monitoring online delivery services to ensure that competitors are transparently competing on price and delivery terms.”

Under the proposed settlement, Instacart is barred from misrepresenting delivery costs and satisfaction guarantees, and must clearly obtain consent before charging customers for automatically renewing services.

The settlement stipulates that Instacart will refund customers if they were charged for Instacart+ without their informed consent. How customers can access refunds is unclear.

Instacart said that it offers a transparent service — with straightforward marketing, easy cancellations and generous refund policies — that is in full compliance with the law.

“We flatly deny any allegations of wrongdoing by the Federal Trade Commission, and we stand firmly behind the integrity and transparency of our programs,” a company spokesperson said in an email to The Washington Times. “This settlement allows us to move forward and remain focused on delivering value for our customers, shoppers, and retail and brand partners in the communities we serve.”

The Washington Times has reached out to Instacart to inquire about the allegations.

Also, in a Monday blog post, Instacart said that after listening to customer feedback, it will end all item price tests effective immediately.

“Over the past couple weeks, there’s been a lot written about Instacart and how pricing works on our platform,” the blog post reads. “Some of that coverage raised fair questions. Much of it included misconceptions and misinformation about what we do — and don’t do — when it comes to prices.”

Senate Minority Leader Charles E. Schumer issued a warning last week about such AI-driven pricing, urging the FTC to step in to combat “unfair and deceptive conduct.”

On Monday, the New York Democrat said that allowing companies to use AI to charge different shoppers different prices for the same exact items was “creepy, costly, and unfair.”

“Ending these AI-driven price tests is an important step toward restoring fairness and transparency for families and seniors who are already stretched thin by high costs and inflation,” he said in a statement.

The company said it previously used its Eversight AI pricing subsidiary with a “small number of retail partners,” which led to different prices for the same item at the same store for some customers. Instacart said it will no longer support any item price testing services.

Retail partners will continue to set their own prices on Instacart, the company said, and they may choose to vary the price of items on a store-by-store basis on Instacart as well.

“Looking ahead, we’re relentlessly focused on the work that matters most to customers: encouraging more retailers to move toward in-store and online price parity,” Instacart said in its blog post. “We’ll continue working closely with partners to remove markups where possible and better align their online prices with their in-store prices. And we’ll keep clearly displaying each retailer’s pricing policy on their Instacart storefront, so customers can see when a retailer chooses to apply markups.”