businesses, lenders, merchant cash advane
New York Attorney General Letitia James is continuing to investigate illegal lending practices that target small business owners. (JUSTIN LANE/EPA-EFE/Shutterstock)

Authorities Ramp Up Efforts to Protect Small Businesses From Exploitative Lenders

Regulators at the federal and state levels are cracking down on lenders that have targeted small businesses with abusive, fraudulent and exploitative loans and collection tactics. As merchants saw revenues vanish as a result of COVID-19, these lenders continued collecting money and threatened to freeze the businesses’ assets, NBC News reports.

These lenders, known as merchant advance companies, operate by providing money to small businesses based on the businesses’ revenues. However, when shutdowns froze the economy, the lenders did not stop extracting money. NBC reports that some small business owners were forced to sell their businesses to escape these lenders.

Related: U.S. Bank, KeyBank, TD Bank and Wells Fargo Announce Efforts to Mitigate Financial Impact of COVID-19

Late last month, the FBI raided Par Funding, a Philadelphia-based firm. The Securities and Exchange Commission (SEC) also sued the company. Additionally, the Federal Trade Commission (FTC) has sued two others: RCG Advances and Yellowstone Capital for allegedly misrepresenting their financing terms. The RCG also faces a suit filed by New York Attorney General Letitia James for allegedly threatening violence and kidnapping those unable to pay back their loans. RCG allegedly charged interest rates in the hundreds and thousands of percent, one nearing an annual interest rate of 4,000% according to the press release.

Yellowstone Capital, the subject of the FTC’s most recent suit, allegedly told borrowers they weren’t required to sign personal guarantees when in fact they were and extracted more money from borrowers’ bank accounts than had been agreed upon, continuing to withdraw funds even after they were repaid.

The SEC’s case against Par Funding revealed the crimes associated with them. Joseph W. LaForte, identified as the “de facto CEO of Par” is a twice-convicted felon who spent time in prison for grand larceny, money laundering and conspiracy to operate an illegal gambling business. This month, LaForte was arrested on a weapons charge.

Related: Majority of Small Businesses Show Customer Appreciation by Giving to Communities, TD Bank Study Finds

Par denies allegations related to its practices and said it even has a full-time compliance officer on staff.

Merchant cash advance companies benefit from the 2018 financial crisis, when major banks cut back on small business loans. Now, as critics indicate that Paycheck Protection Program (PPP) has largely failed to reach many small businesses and minority-owned businesses, merchants may be more likely to turn to merchant cash advance companies.

Because merchant cash advance companies are not banks, they have previously faced light regulations. Interest rates are typically astronomical, and as the New York State suit against RCG indicates, collection techniques are often rife with threats of physical violence.

Government officials investigating these merchant cash advance companies are examining whether they should be subject to usury caps which are regulations on how much interest can be charged on a loan.

“Small businesses are the backbone of our economy, so it is unconscionable that these modern-day loan sharks not only preyed on hardworking business owners with fake loans, but threatened violence and kidnapping,” Attorney General James said in a statement. “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.”

Latest News

COVID entrepreneur

Explosive New Growth in Small Businesses Due to COVID-19; America’s Police Force is Not Becoming More Diverse Despite BLM Movement; the Best and Worst Performing States in the 2020 Census; and More

Even with incredible nationwide unemployment rates, the creation of new small and diverse businesses has exploded due to COVID-19. Finally some news coming out of our pandemic: The Philadelphia Tribune reports that as bars and restaurants closed and stay-at-home orders were put into place earlier in 2020 to help fight…

Justice for Breonna not served; The essential rule of politics; Teen serves two months in jail for not doing homework; and More

Justice for Breonna not served as grand jury indicted officer who shot her with wanton endangerment — but not murder. “Outrageous and offensive.” Those were  by attorney to the family, Ben Crump to describe the grand jury’s decision in the March 13 fatal police shooting of 26-year-old Breonna Taylor. While…

IBM, EEOC, age

EEOC Unearths Years of Intentional Age Discrimination within IBM

After a long investigation, the Equal Employment Opportunity Commission (EEOC) has revealed that IBM leaders had directed managers to replace older workers with younger ones. Between 2013 and 2018, nearly 86% of those considered for layoffs within the organization were older employees over the age of 40. The investigation showed…

Breathe March in Globe Park, New York, USA - 12 Sep 2020

Cities under attack from the Justice Department; Louisville bracing for the Breonna Taylor murder charge; Twitter reveals its racist side; and More

Justice department attacks three U.S. cities, declaring them anarchist zones — despite most of the protests that took place in each city being peaceful marches in support of the Black Lives Matter movement. In a move designed to pull federal funding from New York City, Seattle and Portland, OR, the…

ginsburg, supreme, court

The Lasting Legacy of Supreme Court Justice Ruth Bader Ginsburg — Plus the Four Biggest Issues Currently at Stake Following Her Death

Supreme Court Justice Ruth Bader Ginsburg, who served on the nation’s highest court for 27 years, passed away Friday, Sept. 18 at the age 87. “As the second woman ever to sit on the highest court in the land, she was a warrior for gender equality — someone who believed…

Abbott Receives CE Mark for Next-Generation Mitraclip Heart Valve Repair Device to Treat Mitral

Originally posted on Abbott.com – CE Mark for MitraClip G4 offers physicians an innovative next-generation system with more options for mitral valve repair using proven clip-based technology – MitraClip is a first-of-its-kind transcatheter mitral valve therapy, now on its fourth generation, improving further on MitraClip’s history as a safe and…

Cox Crews Mobilized to Reconnect Gulf Coast

Originally published on Cox.com Cox has mobilized its employees with support from outside of the Gulf Coast area to begin assessing damage and restoring service outages caused by Hurricane Sally. In times like this, we understand it is important to stay connected and we want our services to help you…