Once again, MCA providers must be reminded that “you can only rip off customers until the Federal Trade Commission catches up with you.”

Eventually, it does. In a recent case, FTC accused Yellowstone Capital, a renowned MCA provider of misleading clients, and withdrawing extra payments that small businesses did not owe.

For those who don’t what MCA means – MCAs are a kind of financing where lenders offer a lump sum to a small business in advance in trade for a larger repayment— made as per-day deductions.

Now, the MCA lender used deceptive language to entice micro-business owners, then frequently pulled out funds from their accounts without their say-so. This continued even after the borrowers had cleared their debt, the FTC said in a complaint.

In the lawsuit, the market watchdog accused Yellowstone Capital CEO Yitzhak Stern, and President Jeffrey Reece, of illegally pulling out millions of dollars in extra payments from their clients’ accounts. Further, the company took weeks or months to provide the refunds for any complaints made.

“Small and medium companies are suffering right now and require reliable and honest funding sources,” said Andrew Smith, Head of FTC’s Bureau of Consumer Protection. 

“Ensuring that lending firms and financial institutions don’t rip off borrowing business or engage in unfair practices is the FTC’s job.”

In a few instances, when clients complained, Yellowstone Capital succumbed to the pressure and issued refunds only after weeks or months, hindering cash flow in many small businesses.

In some cases, retailers remained with bank overdraft charges thanks to those unapproved withdrawals.

FTC also accuses the MCA firm of lying to would-be clients about the fees. Many times, the agreements did not reflect the extra charges to be remitted.

These extra deductions went to the tunes of hundreds or thousands, in some instances, causing one retailer to lament; “you guys are like highway robbery.”

Final Words

MCAs are a controversial source of funding. Whether it helps you or ruins your bottom line often depends on your provider’s integrity.

While the Federal Trade Commission works to catch up with bad players, business owners are advised to scrutinize contracts thoroughly.

Author Bio: Michael Hollis is a Detroit native who now lives in Los Angeles. He is an account executive who has helped hundreds of business owners get merchant loans for start up. He’s experimented with various occupations: computer programming, dog-training, scientificating… But his favorite job is the one he’s now doing full time — providing business funding for hard working business owners across the country.