Following a warning from earlier this year, the FTC recently filed a complaint against a group of corporate and individual defendants for allegedly misleading and deceiving small business “merchant cash advance” (MCA) customers. Structured properly, an MCA product offers an alternative to standard commercial credit under which the MCA provider purchases the right to receive a fixed amount of the customer’s receivables to be paid based on a percentage of the customer’s daily receipts.
Specifically, the FTC alleged that the defendants misrepresented the amount of financing small business customers would receive relative to their requests, misrepresented the necessity of collateral and personal guarantees, and engaged in unauthorized withdrawals from customers’ bank accounts even after receiving the agreed upon amount of the customers’ receivables. The complaint calls for permanent injunctive relief, rescission or reformation of the MCA contracts, restitution, refund and disgorgement.
The FTC’s enforcement action is just one of its recent efforts to police alleged unfair and deceptive practices targeting small businesses. Given the current economic disruptions caused by COVID-19, we can expect that the FTC will continue to attack both deception and improper debt collection aimed at small businesses.