Yellowstone—a majestic national park—is famous for Old Faithful, roaming bison, and breathtaking scenery. According to a 2020 FTC complaint, business cash advance provider Yellowstone broke its promises, bullied small business owners, and made illegal withdrawals, taking their cash. The settlement will return more than $9.8 million to customers and includes injunctive provisions that change the way Yellowstone operates.
Defendants Yellowstone Capital, Fundry LLC, Yitzhak D. Stern and Jeffrey Reece provided short-term, high-cost financing products to small businesses in desperate need of capital. They promote “business cash advances” as a quick source of funds for those who may not qualify for bank loans. How do these merchant cash advances work? In effect, the defendants purported to purchase the business’s future accounts receivable at a discount and then be reimbursed for larger amounts in daily payments based on receipts received.
Yellowstone’s ads are rife with claims that their loans require “no collateral and no personal guarantee,” claims the FTC has challenged as false or misleading. In many cases, defendants require business owners to sign a bond that the defendant will be personally liable for the entire amount if the business defaults, insisting on collateral in the form of what is called a security interest, or lien on everything the business has.
The complaint also alleges that the amount specified in the contract was higher than what the customer actually received. According to the FTC, Yellowstone will charge customers various fees to reduce contract amounts.
What’s more, the FTC said the defendants continued to withdraw hundreds or even thousands of dollars from business accounts even after customers had paid them in full, harming business owners who were already struggling to stay afloat. Small business owners found themselves without the cash they needed, sometimes facing hefty overdraft fees due to defendants’ unauthorized withdrawals.
In addition to the $9.8 million financial judgment, the proposed order prohibits the defendants from misrepresenting any material features of their financing products or services and from making any claims regarding the amounts customers will receive without clearly disclosing additional fees and charges. The order also includes a provision aimed at halting Yellowstone’s practice of withdrawing funds from customer accounts without their express informed consent. Another provision requires Yellowstone to monitor the compliance of any marketers or service providers it uses.
The FTC had concerns about deceptive and unfair financing practices targeting small businesses long before the pandemic, and those concerns have only intensified as businesses have been hit by the economic fallout from the coronavirus. In the current economic climate, deceiving small businesses about key terms of contracts and making unauthorized withdrawals from cash-strapped customer accounts are particularly harmful practices. While small businesses struggle to stay afloat, the FTC remains committed to cracking down on deceptive and unfair practices.
