On January 5, the FTC announced that two defendants will be permanently banned from the merchant cash advance and debt collection industries, and required to pay $675,000 to resolve allegations that they used deceptive and illegal means to seize assets from small businesses, non-profits, and religious organizations. The order results from a 2020 complaint against two New York-based companies engaged in small-business financing, along with several of their owners and officers.
The FTC notes that merchant cash advances are a type of alternative small business financing where merchant cash advance companies provide funds to businesses in exchange for a percentage of the businesses’ revenue. Typically, a merchant cash advance company will make daily withdrawals from the business’s bank account until the obligation has been met. However, the original complaint alleged that the defendants violated the FTC Act for engaging in ong other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts. The amended complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain consumers’ financial information, including bank account numbers, log-in credentials, and the identity of authorized signers, in order “to withdraw more than the specified amount from consumers’ 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.
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Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm’s Los Angeles and San Francisco offices.
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Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations.
A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations click here to investigate.
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