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Financial Services Law Insights and Observations

Merchant cash advance providers move to dismiss FTC allegations of deceptive and unfair conduct

Courts Merchant Cash Advance FTC UDAP FTC Act Enforcement


On October 23, defendants in an FTC lawsuit filed a reply brief in support of their motion to dismiss allegations claiming they misrepresented the terms of their merchant cash advances (MCA), used unfair collection practices, made unauthorized withdrawals from consumer accounts, and misrepresented collateral and personal guarantee requirements in advertisements. As previously covered by InfoBytes, the FTC filed a complaint in August against the defendants—two New York-based merchant cash advance providers and two company executives—alleging deceptive and unfair conduct in violation of Section 5 of the FTC Act. Earlier in October, the defendants filed a motion to dismiss, arguing, among other things, that the FTC “lack[ed] the statutory authority to bring its claims in federal court” under Section 13(b) of the FTC Act because “none of the challenged conduct, to the extent it even occurred or was actionable, is plausibly alleged to be ongoing or ‘about to’ occur.” The FTC countered that it “need only allege” that it had “reason to believe Defendants are violating or are about to violate” Section 5 in order to file suit in federal district court. The FTC further contended that it had also alleged facts sufficient for individual liability.

The defendants responded to the FTC’s opposition to dismissal, arguing, among other things, that even if the FTC invoked the statutory authority under Section 13(b) to have the court hear its claims, the claims fail for other reasons, including that the complaint fails to state a claim under Section 5 by (i) only providing “fragments of advertisements without necessary context”; (ii) ignoring “the express fee disclosures in the MCA agreement” that outline the fees to be paid by a merchant; and (iii) ignoring the fact that “so-called ‘unauthorized’ ACH withdrawals were “explicitly authorized under the MCA agreement.” The defendants further argued that the individual liability claims should also be dismissed because the FTC failed to sufficiently allege that the individual defendants directly participated in or had authority over the alleged conduct.  

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