On January 5, the Federal Trade Commission (FTC) announced that two defendants involved in an alleged small business financing scheme will be permanently banned from participating in the merchant cash advance and debt collection industries.
The FTC filed a complaint against RAM Capital Funding LLC (RAM) and its owner alleging the defendants deceived small businesses by:
- Requiring personal guarantees and upfront fees from customers after representing such demands would not be made
- Providing less funding than promised
- Using false statements to obtain financial information
- Making unauthorized withdrawals from customers’ bank accounts
Additionally, the complaint alleged that the defendants used unfair debt collection practices, including sometimes threatening physical violence, and illegally weaponized confessions of judgment to seize customers’ personal assets.
In short, the defendants violated provisions of the Gramm-Leach-Bliley Act and the FTC Act by misrepresenting the terms of merchant cash advances. Although merchant cash advances are generally unregulated financial products, the FTC Act bars businesses from engaging in unfair and deceptive practices in both business-to-consumer and business-to-business transactions.
The Settlement Between the FTC and RAM
As part of the settlement, the defendants are permanently banned from (1) advertising, marketing, promoting, offering, providing, arranging for, or attempting to collect payment or other consideration in connection with any merchant cash advance and (2) making misrepresentations and engaging in further violations of the Gramm-Leach-Bliley Act.
Moreover, the defendants must vacate any judgments against former customers and release any liens against customers’ property. Finally, the defendants have been ordered to pay a $675,000 monetary judgment; the order is pending approval by a District Court judge.
“[The] order makes clear that preying on small businesses will come with a heavy price,” said Samuel Levine, the Director of the FTC’s Bureau of Consumer Protection. “These defendants have been banned from the merchant cash advance business, and we intend to hold their co-defendants similarly accountable.”
The case against the other defendants, RCG Advances, LLC and its owners. is ongoing; the proposed order requires RAM and its owner to cooperate with the Commission in that matter.
Why This Matters
The FTC has been stepping up its scrutiny of MCA providers. The enforcement action against RAM follows an April 2021 settlement with Yellowstone Capital and its founder for alleged unfair and deceptive practices in violation of the FTC Act. While the outcome of the FTC’s investigation against RCG Advances remains to be seen, the crackdown on unscrupulous MCA providers is likely to continue.
In the meantime, if your business is struggling under the terms of a merchant cash advance, you have options. By contacting and working with an experienced debt relief specialist, you may be able to reconcile your merchant cash advance, restructure the payment plan, and avoid an event of default.