Yellowstone Capital, LLC was ordered to pay $9.8 million to settle a Federal Trade Commission complaint alleging the company made unauthorized withdrawals and deceived consumers about the amount of financing offered and requirements of financing.

Yellowstone Capital, LLC (“Yellowstone”) is a New York based company founded by Yitzhak Stern. Jeffrey Reece is the President of Yellowstone. The FTC named Stern, Reece, and Yellowstone as defendants in its complaint. Yellowstone advertised and offered merchant cash advances to small business consumers that needed immediate funds. Merchant cash advances typically provide money to businesses in exchange for a larger amount repaid through automatic daily payments. FTC alleged that Yellowstone and its owners misled consumers and routinely made additional unauthorized withdrawals.

Yellowstone reportedly misrepresented its requirements while marketing its merchant cash advances. Many advertisements claimed Yellowstone does not require collateral or a personal guarantee. However, according to the FTC complaint, Yellowstone did require the business owners to sign a personal guarantee, holding them responsible for the entire loaned amount in the event of default. Additionally, Yellowstone required consumers to provide collateral in the form of purported security interest or lien in all business property. This included all financial accounts and assets.

In addition to requiring personal guarantees and collateral, Yellowstone allegedly provided consumers with substantially less than the funds promised in the contract. The FTC reports that Yellowstone did so by withholding fees, ranging from hundreds to thousands of dollars, prior to the disbursement. The fees are mentioned in the contract, but Yellowstone did not indicate that the fees would be deducted from the funds promised to consumers on the first page of the contract.

Yellowstone collected repayments by requiring consumers to provide authorization for Yellowstone to withdraw daily payments. The payments typically amounted to hundreds of dollars each day until the full amount was repaid. In 2015, Yellowstone began withdrawing additional unauthorized charges from customers after receiving the total agreed-upon amount, according to the FTC.  Yellowstone did so through a delay in its recordkeeping and payment process, allegedly resulting in 4-5 additional payments. Yellowstone reportedly acknowledged that they knowingly took the overpayments. Consumers claimed that the overpayments caused the banks to charge overdraft fees due to their accounts being drained by Yellowstone withdrawals.

As a result, Yellowstone Capital has been ordered to pay $9.8 million to settle the FTC charges. The commission vote approving the stipulated final order was 4-0.