New Jersey Attorney General Sues Merchant Cash Advance Providers | Ballard Spahr srl

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The New Jersey Attorney General recently filed a complaint in New Jersey state court against Yellowstone Capital LLC, its parent company Fundry.US LLC and various subsidiaries and affiliates of Yellowstone, alleging that the defendants had violated the Consumer Fraud Act (CFA) of New Jersey and the New Jersey Regulations Governing General Advertising (Advertising Regulations) in relation to marketing and the provision of cash advances to merchants. Yellowstone and Fundry have also been named accused in a recent lawsuit filed by the FTC for allegedly unfair and deceptive acts or practices in violation of the FTC law in connection with the same activities.

The CFA prohibits the use of:

any unreasonable business practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, deletion or omission of any material fact with the intention that others will rely on such concealment , deletion or omission, in connection with the sale or advertising of any merchandise or real estate… whether or not someone has been misled, deceived or damaged as a result….

The Advertising Regulations make various practices illegal with respect to all advertising, including:

The presentation of false or misleading facts concerning the reasons, the existence or the amount of the price reductions, the nature of an offer or the quantity of goods advertised available for sale.

The NJ AG complaint refers to small businesses and their owners who obtained cash advances from defendants’ merchants as “consumers”, perhaps to emphasize that “consumers” protected by the CFA include businesses. According to the complaint, the defendants violated the DWI through conduct that included:

  • Charging usurious interest rates on small business loans disguised as debt purchases
  • Withdrawing money from customers’ bank accounts in excess of authorized amounts by continuing to withdraw money after a customer has fully refunded the “Amount Purchased” and then failing to make timely refunds
  • Filing of admissions of judgment and obtaining judgments against consumers who have not defaulted or who have not violated trade agreements
  • Distort or conceal from consumers the true nature of transactions such as usurious loans
  • Misrepresent the amount of the purchase price consumers would receive, the amount of fees defendants would debit from consumers’ bank accounts, and the amount of upfront fees
  • State in advertisements that they do not require personal guarantees from business owners when in reality they do require business owners to sign personal guarantees of the full amount financed in the event of default of the company

The NJ AG alleges that the defendants violated the Advertising Policy by conduct that included inaccurate statements regarding personal guarantees as well as their statements in advertisements that they did not need collateral from business owners while ‘in effect, they required business owners to enforce security agreements. provide guarantees to defendants in the event of default.

In addition to a permanent injunction to prevent future violations of the CFA and the Advertising Regulations, the relief sought by the NJ AG includes the maximum legal civil penalty for each violation of the CFA, restitution of illegally acquired profits, rescinding all trade agreements and orders requiring defendants to set aside all judgments illegally obtained in their favor against consumers and to file sufficient documentation to terminate any illegally obtained lien or security relating to merchant cash advances .

The FTC and NJ AG lawsuits are a reminder that the FTC and state AGs have enforcement authority over business-to-business activities and that small business loans and other forms of small business finance are often treated the same as consumer loans for the purposes of FTC law as well as state laws.


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