FTC launches cash advance probe for traders

The Federal Trade Commission launched an investigation into the merchant cash advance industry just days after FTC Commissioner Rohit Chopra called on the watchdog to tackle unfair small business lending practices.

The Washington post reported late last week that the FTC opened an investigation into potentially unfair contract terms imposed on small business borrowers by merchant cash advance companies and other small and medium-sized business lending companies (SMEs). ).

The Manhattan District Attorney has also launched a criminal investigation into the industry, while the New York State Attorney General’s office is in the midst of a civil investigation into the case revealed last year, according to reports.

According to the outlet, law enforcement initiatives represent “an unprecedented level of government attention” for the sector, which has eluded regulators by classifying cash advances from traders as non-loans and, therefore, exempt from personal loan protection under federal and state law.

“One of the reasons we’re so interested in this market is that it appears to have been so under-guarded,” Andrew Smith, director of the FTC’s Office of Consumer Protection, said in an interview with the publication. , which Manhattan District officials said. Prosecutor Cyrus Vance and New York Attorney General Letitia James both declined to comment.

According to Smith, the FTC investigation is still in its early stages, but could lead to further civil actions or regulatory changes. “Let’s say admissions of judgment are an unfair practice,” he said. “We could make a rule, or we could take enforcement action against a company that uses them unfairly.”

He did not say whether any particular lenders were under investigation.

The FTC’s Chopra spoke at a forum in Washington, DC earlier this month, denouncing the issue of potentially abusive contract terms in the small business finance community that “led to a flood of actions. dubious lawsuits against SME borrowers.

“The FTC is the only federal regulator and enforcement agency in the small business finance market,” he said. “We will need to determine whether certain contractual terms and business practices constitute a violation of the law.”

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