FTC Bans Provider Of Cash Advances To Industry Traders | Sheppard Mullin Richter & Hampton LLP


On January 5, the FTC announcement that two defendants will be permanently banned from the cash advance and debt collection industries, and will have to pay $ 675,000 to resolve allegations that they used deceptive and illegal means to seize the assets of small businesses, organizations and nonprofit and religious organizations. The order stems from a 2020 lawsuit against two New York-based companies engaged in small business financing, as well as several of their owners and executives.

The FTC notes that merchant cash advances are a type of alternative financing for small businesses where merchant cash advances companies provide funds to businesses in exchange for a percentage of the businesses’ income. Typically, a merchant cash advance company will make daily withdrawals from the company’s bank account until the obligation is fulfilled. However, the original The complaint alleged that the defendants violated FTC law for engaging in deceptive and unfair practices, including distorting the terms of their cash advances to merchants, using unfair collection practices and making unauthorized withdrawals. consumer accounts. the amended The complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain financial information from consumers, including bank account numbers, login credentials and identity of authorized signatories, in order to “withdraw more than the specified amount from consumer bank accounts.”

The FTC’s case against three other defendants is ongoing, and the proposed order requires the settling defendants to cooperate with the FTC.

Put into practice : This FTC action is consistent with that of the FTC continued focus in recent years on small business finance, and serves as a reminder to participants in the cash advance space to monitor their compliance with federal and state unfair and deceptive practices laws and other regulations to ensure full and proper compliance.


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