Protecting small businesses seeking financing during the pandemic

Small businesses are an important part of the U.S. economy, providing opportunities and jobs to consumers across the country. Unfortunately, the current health crisis has put financial pressure on small businesses, impacting their ability to obtain the financing they need to survive. Therefore, now more than ever it is important to protect distressed businesses and their owners from deceptive and unfair practices. The FTC is working quickly to provide this service.

Since the outbreak, we have taken enforcement action and used other tools to stop finance providers and their marketers from targeting businesses engaging in unlawful conduct. For example, today we are announcing a lawsuit against Yellowstone Capital, a business cash advance provider, which we allege made unauthorized withdrawals from consumers’ bank accounts and challenged the collateral, personal guarantees, and amounts of cash they provided. Making false claims.

In recent months, we have also filed lawsuits against two other small business operations for alleged violations of the FTC Act: RCG Advances and Ponte Investments LLC (doing business under the SBA Loan Program). Additionally, the FTC and Small Business Administration issued a joint warning letter to advertisers warning that claims made by advertisers about their affiliation with the federal government or emergency loan programs created to protect businesses during the pandemic may be misleading.

The FTC’s enforcement efforts and our 2019 Rigorous Business Forum on Small Business Financing provided some important takeaways for financing providers and the companies they work with:

Like other consumers, small businesses are protected by the Federal Trade Commission Act. The FTC Act gives the agency broad authority to stop deceptive and unfair practices by companies involved in every step of the financing process, including lenders and finance providers, as well as marketers, independent sales organizations (ISOs), brokers people, lead generators, service providers, and debt collectors.

Do not deceive consumers about the features or obligations of your financing product. Our recent actions against Yellowstone and RCG alleged that these business cash advance providers misrepresented key aspects of their products, including the amount of funds consumers would receive and the requirements for small businesses to provide collateral and personal guarantees. Likewise, you cannot make misleading statements about other important terms, such as costs and payment amounts.

Do not mislead consumers about who you are or your affiliation with government relief programs. As is often the case when governments launch new schemes, some marketers have deceptively promoted their links to these schemes during the current crisis. Our lawsuit against companies doing business under the SBA loan program alleges that the defendants deceived small business consumers about their relationship with the Small Business Administration and their authority to issue Paycheck Protection Program (PPP) loans. The recent FTC-SBA warning letter raises similar concerns.

Supervise your marketers and other agents. Merely relying on intermediaries such as ISOs, lead generators, brokers, facilitators or debt collectors to market or service your products does not relieve you of your responsibility. Instead, take steps to ensure that your agents do not engage in deceptive or otherwise illegal conduct. Scrutinize them carefully, incorporate compliance standards into your contracts, monitor their behavior for warning signs of problems (such as consumer complaints), audit them and enforce those contract standards. The FTC’s action against CEC is a case in point. In lawsuits against post-secondary school operators, we pursue not only these schools’ direct roles in marketing but also alleged violations of the Federal Trade Commission Act that resulted from the unlawful conduct of lead generators, For example, these lead generators falsely claimed to be affiliated with the U.S. military.

Make sure you and your service personnel avoid illegal service practices. The protections of the FTC Act are not limited to marketing. They occur throughout the life cycle of a financing product—including repayments and collections. For example, the law would prohibit companies from not honoring their commitments that customers can lower or stop payments due to reduced income or health-related shutdowns. Additionally, the FTC Act also prohibits unfair practices, such as taking unauthorized payments from consumers’ bank accounts—something we allege occurred at both Yellowstone and RCG.

Do not initiate collection actions or seek drastic remedies, such as a COJ, against small business owners who meet their obligations. For example, in the RCG we alleged that a financial provider filed a COJ against a consumer who was not in breach of the agreement or in default. Given the serious consequences of COJs, the Federal Trade Commission is paying close attention to ensure they are not being deceived or used unfairly.

Never make false or excessive threats when collecting outstanding payments or debts. You and your debt collectors should avoid the types of illegal conduct alleged by the Federal Trade Commission in many of our debt collection cases, such as collecting amounts consumers do not owe, making false threats of arrest or other serious consequences, and harassing consumers with continuous phone calls. , or using abusive language or threats of violence (which we allege occurred in RCG).

Report potentially illegal conduct to the Federal Trade Commission. If you see a financial provider, marketer, or others in the industry violating the boundaries we have outlined, please report it to the FTC. Likewise, if your clients say another provider acted deceptively or unfairly against them, please encourage them to report their experience to us online or call 1-877-FTC-HELP.