Merchant cash advance providers banned from industry, doomed to remedy small businesses

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Two of the defendants behind an alleged small business financing scheme, RAM Capital Funding, LLC and its owner Tzvi Reich, will be permanently banned from the cash advance and debt collection industries, and ordered to pay $675,000 to settle the Federal Trade Commission fees they used deceptive and illegal means to seize the assets of small businesses, nonprofits and religious organizations.

“Today’s order makes it clear that attacking small businesses will come at a steep price,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. “These defendants have been banned from the business of cash advances to traders, and we intend to hold their co-defendants accountable in the same manner.”

Cash advances to merchants are a type of alternative financing for small businesses. Typically, merchant cash advance companies provide funds to businesses in exchange for a percentage of business income. Typically, a merchant cash advance company will make daily withdrawals from the company’s bank account until the obligation is fulfilled.

As detailed in the February 2020 FTC Staff Viewpoint on the “Strictly Business” forum, however, some merchant cash advance providers engage in aggressive and potentially deceptive marketing practices and use potentially abusive recovery.

The FTC alleged that since 2015, the defendants have deceived small businesses and other organizations in violation of the FTC Act and the Gramm-Leach-Bliley Act by demanding personal guarantees and upfront fees from consumers after stating that they would not make these demands, providing less financing to consumers than promised, and debiting more from consumers’ bank accounts than they had promised.

The agency also alleged that the defendants made unauthorized withdrawals from consumer accounts and used unfair collection practices, sometimes including threats of physical violence. In addition, the FTC alleged that the defendants unlawfully used “judgment admissions,” contractual terms that allowed defendants to sue customers’ personal assets in court and obtain uncontested judgments against them.

As part of the settlement, the defendants are ordered to set aside any judgment against their former clients and to release any lien on the property of their clients. The proposed order would also prohibit such defendants from making these and similar misrepresentations, and other violations of the Gramm-Leach-Bliley Act.

The Commission’s case against the other defendants, RCG Advances, LLC, Robert Giardina and Jonathan Braun, is ongoing, and the proposed order requires settlement of defendants RAM Capital Funding and Reich to cooperate with the FTC.

The Commission vote approving the stipulated final order was 4-0. The FTC filed the draft order in the United States District Court for the Southern District of New York.

REMARK: Final stipulated orders or injunctions, etc. have the force of law when approved and signed by the judge of the district court.

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