FTC Takes Action Against Merchant Cash Advance Provider

Advocate Andy

RAM Capital Funding Now Banned from Industry

The Federal Trade Commission (FTC) announced a settlement today that bans a merchant cash advance company and its owner from the industry as a result of deceptive and illegal practices.

As a result of the settlement, RAM Capital Funding, LLC and its owner Tzvi Reich, will be permanently banned from the merchant cash advance and debt collection industries, and required to pay $675,000 to settle charges that they used deceptive and illegal means to seize assets from small businesses, non-profits, and religious organizations.

“Today’s 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.”

Merchant cash advances are a type of alternative small business financing. Generally speaking, merchant cash advance companies provide funds to businesses in exchange for a percentage of the businesses’ revenue. Typically, a merchant cash advance company will make daily withdrawals from the business’s bank account until the obligation has been met.

Threats of Violence

The FTC alleged that the defendants made unauthorized withdrawals from consumers’ accounts and used unfair collection practices, including sometimes threatening physical violence. In addition, the FTC alleged that the defendants illegally weaponized “confessions of judgment,” contractual terms that allowed defendants to pursue customers’ personal assets in court and obtain uncontested judgments against them.

Merchant Cash Advances Carry Consumer Risks

A previous FTC report noted several areas of concern relative to Merchant Cash Advances (MCAs).

Panelists at our Forum and other experts have expressed a variety of concerns about MCAs. First, they note that MCAs have very high costs — including, in some cases, estimated APRs in the triple digits. As a result, many business owners who obtain MCAs may struggle to successfully repay them. One panelist noted that businesses desperate for funding often seek out MCAs in the short term because they are quick and easy to obtain, but then suffer negative long-term consequences. Such consequences include being forced to renew their advances or take out multiple MCAs at the same time, potentially encumbering the same receipts (a phenomenon known as “stacking”), in order to both meet their repayment obligations and avoid shutting down.
Second, observers have expressed concerns that some MCA providers and their marketers may engage in aggressive, and potentially misleading, marketing practices.
. . . our panelists and other observers have expressed concerns about the use of potentially abusive collection tactics by MCA providers and their agents against business owners who struggle with repayments.

So, while one bad actor in the MCA space has been shut down, small business owners should beware of the risks involved in obtaining a Merchant Cash Advance.

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Andy Spears is a middle Tennessee writer and policy advocate. He reports on news around public policy issues - education, health care, consumer protection, and more.

Nashville, TN
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