According to recent reports, at least three New York State county clerks have taken steps to curb the use of confessions of judgment, a predatory lending tactic used commonly by merchant cash advance companies.
A confession of judgment is a written agreement, signed by the borrower, that accepts liability and an amount in damages that was agreed upon by the parties. A merchant cash advance lender will use a confession of judgment to avoid regular court proceedings and a lengthy legal process when a borrower goes into default on their merchant cash advance payments. When a borrower signs a confession of judgment, he or she essentially forfeits his or her rights to dispute a future claim by the lender. Oftentimes, merchant cash advance lenders will charge sky-high interest rates, sometimes up to 400%. As a result, thousands of small business owners default on their merchant cash advance payments each year. Oftentimes, borrowers will have to file bankruptcy and close their business.
According to The Washington Post, clerks in Richmond, Erie, and Orange, New York counties have stopped processing most confessions of judgments following the Bloomberg News report on the abuses of merchant cash advance companies and as federal and state officials have called for a ban on the tactic. As mentioned in a recent blog, Barbara Underwood, New York’s Attorney General, has launched an investigation into practices of merchant cash advance companies to determine whether they have committed fraud or abused the court system. According to the Post, collectively, the three counties handle almost half of the merchant cash advance industry’s caseload.
According to two of the Richmond clerks, they have begun rejecting confession of judgment filings that require filing paperwork in more than one county. The clerks have cited a law that states that the document must state which county it is valid in. Typically, the merchant cash advance lender will require borrowers to approve multiple counties in New York, or sometimes all of them, in order to maximize their options.
According to a statement by Annie Rabbitt, a clerk in Orange County, she will not process any confession until the New York general attorney’s office has completed its investigation.
According to court records, because the clerk’s decisions refuse to process the confessions of judgments in Richmond, Erie, and Orange counties, they have been sent to other counties that still recognize the practice. Westchester County has recently seen a surge of confession filings. Timothy Idoni, a clerk at the Westchester office, stated that, although he’s advocating for state lawmakers to ban confessions of judgments, his office will continue to process them until legislation is passed.
Over the years, New York county clerks have been an essential cog in the industry’s practices. When a borrower defaults on his or her payments, a county clerk will enter judgment against the party without notice or a hearing. The action provides the lender authority to seize the borrower’s bank account. Last year, merchant cash advance companies won more than 11,000 judgments in New York.
However, borrowers have reported not knowing of the confession of judgment until they try to access their bank account and learn that it has been locked by the merchant cash advance company. Some have accused lenders of forging confessions of judgment, lying about defaults, or making false claims about how much is due.
If you are a business owner and have defaulted or are about to default on your merchant cash advance, it is important that you seek the guidance of an experienced merchant cash advance defense lawyer. Robert Jacovetti of the Law Office of Jacovetti Law, P.C. is experienced in handling merchant cash advance defense matters. Mr. Jacovetti works with business owners to assess their debt situation and advise them of pathways to financial stability. For more information or to schedule a consultation, you can call (516) 217-4488 or schedule an appointment in our Mineola office.