On June 2, the FTC was granted a federal court order permanently barring a merchant cash advance operation and its owner from engaging in further deceptive practices and granting restitution to the customers the company harmed. The defendants offered alternative small business financing by purportedly providing funds to businesses in exchange for a percentage of future revenue. According to the FTC, however, the defendants frequently deceived small businesses and their owners, lying about terms and fees for their financing. The websites falsely claimed that cash advanced required no personal guaranties of collateral while the contracts did include such requirements. The merchant cash advance company also required businesses and owners to sign confessions of judgment, which allowed the company to obtain uncontested judgments in cases of alleged default, and which the defendants sometimes used to illegally and improperly seize consumers’ assets. Customer businesses often received thousands of dollars less funding than promised. The FTC further alleged that the defendant company and owner threatened physical violence when the businesses were unable to pay. Finally, the company is accused of providing false documents to the court during proceedings.

Under the court order, the company and its owner are:

  • Banned from engaging in the business financing and debt collection industries;
  • Prohibited from misleading customers about material facts regarding goods and services provided, including fees and costs;
  • Required to vacate judgments and liens against former customers; and
  • Required to pay upwards of $2.7 million to provide refunds to harmed customers.

Putting It Into Practice: The FTC’s Bureau of Consumer Protection is continuing its recent track record of cracking down on companies that pray on small business and taking proactive steps to protect small business through rulemaking (we discussed these recent activities in recent blog posts here, here, and here). Companies should ensure that all material representations made to customers are clear and accurate. Participants in the cash advance and business financing industry in particular should monitor compliance with unfair and deceptive practices laws to ensure full compliance.