FTC, New York State slam MCA company

The Federal Trade Commission and New York State Attorney General Letitia James are taking to task a merchant cash advance company that allegedly engaged in deceptive marketing and unfair collection practice, including threats of violence to compel business owners to repay money.

Complaints were filed simultaneously last month by the FTC in U.S. District Court for the Southern District of New York and by the New York Attorney General in New York County State Supreme Court against RCG Advances LLC — formerly known as Richmond Capital Group LLC, and also doing business as Viceroy Capital Funding and Ram Capital Funding. Also named in court documents were several individuals: Robert L. Giardina, owner of Richmond and Viceroy; Tzvi Reich, owner of Ram; Michelle Gregg, a director of Richmond and Viceroy; and Jonathan Braun, who helped lead RCG’s MCA operations.

Numerous allegations

The specific allegations include:

• Company websites claiming their cash advances require “no personal guaranty of collateral from business owners,” when in fact the contracts did contain such provisions;
• Marketing MCAs with “no up-front costs,” then withholding thousands of dollars in an array of fees from the promised financing amount;
• Charging higher fees than allowed under the contracts;
• Requiring owners to sign confessions of judgements, which allow lenders to go to court to obtain uncontested judgements, then using falsified affidavits to secure judgements against business owners;
• Making threatening collections call, in one case threatening to break a borrower’s jaw if he failed to make payments, and in another instance threatening to ruin a borrower’s reputation by falsely accusing him of being a child molester if he did not pay up.

In a statement detailing the allegations, the New York attorney general’s office stated that the Richmond companies have destroyed small businesses and harmed their owners through their abusive practices.

"Merchants have been forced to take desperate measures to cope with debt from the Richmond companies’ merchant cash advances, including taking out new cash advances to pay off their existing debts," the office wrote. “This cycle of debt has ruined businesses, including a plumbing business in Virginia that took out a cash advance from Richmond, paid off the debt by taking out additional cash advances, and eventually was forced to close its doors after being in business for 30 years.”

ISOs beware

MCAs and other forms of short-term business loans have become exceedingly popular with cash-strapped small business. The Federal Reserve reported that 32 percent of small businesses sought financing from alternative online providers, including MCA companies, in 2018, up from 19 percent in 2016.

The FTC has broad jurisdiction under the FTC Act and other laws to go after small business financing providers and their marketers, servicers and collectors that engage in deceptive, unfair and other unlawful practices.

In a recent report, the FTC identified the high cost of MCAs, which in some cases can carry rates equivalent to triple-digits, that render these a burden to many. It also pointed to a lack of standardized disclosures, and “potentially abusive collection tactics” as potential problems it was keeping tabs on.

The FTC report also cautioned ISOs, brokers and lead generators "that market MCAs and other financing products to avoid potentially false or unsubstantiated advertising claims. Additionally, finance providers should be aware that their use of these marketing intermediaries does not immunize them from liability under the FTC Act.”

New York Attorney General James said her office, too, is intent on protecting small businesses from unsavory MCA companies and other short-term business finance firms. “While small businesses may not always have the tools to protect themselves from unscrupulous actors, my office is determined to use every tool at its disposal to protect small businesses from these illegal fraudsters, and will fight to get every penny back,” she said.

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