Yellowstone – the majestic national park – is known for Old Faithful, roaming bison, and vistas to take your breath away. According to a 2020 FTC complaint, Yellowstone – the merchant cash advance provider – was unfaithful to its promises, buffaloed small business owners, and made illegal withdrawals that took their cash away. A settlement will return more than $9.8 million to customers and includes injunctive provisions to change how Yellowstone does business.
Defendants Yellowstone Capital, Fundry LLC, Yitzhak D. Stern, and Jeffrey Reece offer short-term, high-cost financing products to small businesses in immediate need of funds. They pitch their “merchant cash advances” as a quick source of funds for people who may not qualify for bank loans. How do those merchant cash advances work? In effect, the defendants claim to buy businesses’ future receivables at a discount and then get paid back a larger amount in daily payments based on incoming receipts.
Yellowstone’s ads were replete with claims that their loans required “No collateral, no personal guarantee,” representations the FTC challenged as false or misleading. In many cases, the defendants required business owners to sign a guarantee holding them personally responsible for the entire amount if the business defaulted and insisted on collateral in the form of a purported security interest or lien on everything the business owned.
The complaint also alleges that the dollar amounts specified in contracts were larger than what customers actually received. According to the FTC, Yellowstone instead would reduce the contractual amount by dinging customers for a variety of fees.
What’s more, the FTC says the defendants injured business owners already struggling to stay afloat by continuing to help themselves to hundreds or even thousands of dollars from businesses’ accounts even after customers had paid the defendants in full. Small business owners found themselves without needed cash and were sometimes stuck with hefty overdraft fees as a result of the defendants’ unauthorized withdrawals.
In addition to the $9.8 million financial judgment, the proposed order prohibits the defendants from misrepresenting any material feature of their financing products or services and from making any claims about the amount customers will receive without clearly disclosing additional fees and charges. The order also includes a provision to put a stop to Yellowstone’s practice of taking money from customers’ accounts without their express informed consent. An additional provision requires Yellowstone to monitor the compliance of any marketers or servicers that it uses.
The FTC’s concerns about deceptive and unfair financing practices that target small businesses predate the pandemic, and those misgivings have only grown as businesses have been buffeted by the economic impact of the coronavirus. Deceiving small businesses about key terms of contracts and making unauthorized withdrawals from the accounts of cash-strapped customers are particularly pernicious practices in the current economic climate. As small businesses struggle to keep their doors open, the FTC remains committed to slamming the doors on deceptive and unfair practices.