Merchant cash advance providers banned from industry and ordered to turn around small businesses
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 Federal Trade Commission charges that they used deceptive and illegal means to seize the assets of small businesses, nonprofits, and religious organizations.
“Today’s order makes it clear that tackling small businesses will take a heavy toll,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. “These defendants have been banned from merchant cash advance activity, and we intend to hold their co-defendants similarly accountable.”
Merchant cash advances are an alternative type of financing for small businesses. In general, mCash advance companies provide funds to businesses in exchange for a percentage of the businesses turnover. Typically, a merchant cash advance company will make daily withdrawals from the company’s bank account until the obligation is met.
As detailed in the February 2020 FTC Staff Perspective on the “Strictly Business” forum, however, some merchant cash advance providers engage in aggressive and potentially misleading marketing practices and use potentially abusive collection tactics.
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 representing that ‘they wouldn’t make those demands, offering less financing to consumers than promised, and taking more from consumers’ bank accounts than they had advertised.
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 weaponized “judgment admissions,” contract clauses 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 vacate any judgments against their former clients and release any liens on their clients’ property. The proposed order would also prohibit these defendants from making these and similar false statements, and further 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 defendants RAM Capital Funding and Reich to cooperate with the FTC.
The Commission’s 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: The stipulated final orders or injunctions, etc. have the force of law when approved and signed by the district court judge.