On February 20, a judge for the U.S. District Court for the Central District of California granted the FTC a preliminary injunction against a small business financing company.
The FTC alleges that the company violated Section 5 of the FTC Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, and the Consumer Review Fairness Act of 2016 for misleading small business owners about the nature of its financial products, resulting in unexpected fees and damage to their credit.
According to the FTC’s complaint, the company marketed itself as a provider of business loans and lines of credit but instead applied for multiple personal credit cards in consumers’ names. Many small business owners only discovered the scheme after receiving an invoice demanding payment of high fees tied to their newly approved credit limits. The FTC further alleged the company engaged in deceptive advertising and unfair contract terms designed to prevent negative consumer reviews.
The court’s injunction freezes the company’s assets and restricts its business activities while the litigation proceeds.
Putting It Into Practice: While the CFPB faces uncertainty over its future (previously discussed here), the FTC has continued to be active in the financial services sector. This case reflects the agency’s continued focus on small business lending practices, particularly those practices related to deceptive marketing and undisclosed fees.