United States: FTC Bans Industry Merchant Cash Advance Provider
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On January 5, the FTC announcement that two defendants will be permanently banned from the merchant 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 assets from small businesses, non-profit organizations and religious organizations. The order stems from a lawsuit filed in 2020 against two New York-based companies engaged in financing small businesses, as well as several of their owners and executives.
The FTC notes that merchant cash advances are an alternative type of financing for small businesses where merchant cash advance companies provide funds to businesses in exchange for a percentage of business revenue. Typically, a merchant cash advance company will make daily withdrawals from the company’s bank account until the obligation is met. However, the original The complaint alleged that the defendants violated FTC law for engaging in deceptive and unfair practices, including misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals. on consumer accounts. the amended the complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition against using false statements to obtain consumer financial information, 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 settlement defendants to cooperate with the FTC.
Put into practice : This FTC action is consistent with FTC policy continued focus in recent years on small business financingand serves as a reminder to participants of 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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