The Federal Trade Commission recently announced that it has settled the lawsuit it filed against Yellowstone Capital LLC, a provider of merchant cash advances, and its chief executive officer and president for alleged unfair and deceptive conduct in violation of section 5 of the FTC Act, 15 U.S.C. § 45.
In its Complaint, the FTC alleged that the defendants engaged in deceptive acts or practices by (1) representing that they did not require collateral or personal guarantees from business owners when, in reality, they did require business owners to grant a purported security interest or lien on all business property they owned, and (2) representing that the defendants would provide the business owners a certain amount of funding when, in reality, the amount provided was substantially less as a result of withholding fees that were not clearly and conspicuously disclosed. The FTC also alleged the defendants engaged in unfair acts or practices by taking money from business’ bank accounts without permission.
The settlement requires the defendants to pay $9,837,000 to the FTC to be used in providing refunds to the impacted businesses. Additionally, the defendants are permanently enjoined from making misrepresentations about (1) the requirements for obtaining the financing product or service; (2) any fees or charges and the total amount customers will repay; (3) the amount of funds that will be received; (4) and any other material fact related to the financing product or service.
Defendants are further required to clearly and conspicuously disclose any fees and charges, the amount the fees of charges will reduce the funds received, the specific amount of funds the customer will receive after paying the fees and charges, and the total amount the customer will repay. The settlement also enjoins the defendants from making unauthorized withdrawals from any consumer’s financial account.
The proposed Stipulated Order contains various compliance monitoring provisions as well, including requiring the defendants to create and maintain a system to monitor marketers and funders compliance with the terms of the settlement if they choose to work with such entities.
The settlement was filed in the United States District Court for the Southern District of New York just one day prior to the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC, in which the Court ruled that Section 13(b) of the FTC Act does not authorize the FTC to seek, and a court to award, monetary relief such as restitution or disgorgement.
In response to the Supreme Court’s decision, the FTC filed a Notice of Supplemental Authority informing the district court of the decision and stating its position that the decision does not affect the district court’s authority to enter the Stipulated Order because it is a contract between the consenting parties.