The Federal Trade Commission (FTC) recently obtained a court order permanently banning RCG Advances, LLC and its owner from the merchant cash advance industry. The FTC filed lawsuits against RCG and other merchant cash providers in 2021 for deceiving small business owners about the terms and fees for financing and threatening violence when they did not pay.
“These defendants lied to small businesses about financing, stole money from their accounts, made violent threats, and gave false documents to the courts,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a press release.
The court order also requires RCG and its owner to make an upfront payment of $1.5 million and a subsequent payment of more than $1.2 million to refund the aggrieved businesses.
“This order bans them from the merchant cash advance business and requires them to return money to the businesses they cheated,” Levine said.
Why Was RCG Banned From the Merchant Cash Advance Industry?
The FTC alleged that RCG Advances (and its owner) operated a merchant cash advance scheme since at least 2015. The agency’s investigation found that RCG deceived small businesses about financing terms and violated federal law in their communications. The alleged misconduct included:
- Deceiving consumers about personal guarantees – The defendants falsely advertised that their cash advances required no collateral or personal guarantees when their contracts included those requirements.
- Forcing businesses into confessions of judgment – The defendants required business owners to sign confessions of judgment, which allowed the defendants to obtain an uncontested judgment in the event of default. The complaint alleges that the defendants illegally used these confessions of judgment to seize assets improperly.
- Providing less funding than promised – Businesses received thousands of dollars less in funding than promised due to undisclosed fees, despite the defendants’ marketing promises of “no upfront fees.”
- Threatening businesses – The defendants allegedly made threatening calls if business owners did not make payments.
The FTC’s Enforcement Action Against RCG Advances
The court order permanently bans RCG from the business financing and debt collection industries. In addition, RCG must vacate any judgments against their former customers and release any liens against their property. Finally, the defendants must pay more than $2.7 million in refunds to businesses harmed by their actions. The FTC’s enforcement action follows a similar court order against RAM Capital Funding, LLC in January 2022, as we previously reported (here).
The FTC continues to crack down on unscrupulous merchant cash advance providers. Despite the enhanced regulatory scrutiny, businesses that rely on these alternative funding products for working capital should be aware of the risks. And if your business is struggling under the terms of an MCA agreement, contact an experienced debt relief specialist who can help reconcile your merchant cash advance.