We previously highlighted the benefits of Confessions of Judgment in New York debt collection. Typically, when our clients who are collecting a debt wish to avoid litigation, we recommend utilizing confessions of judgment.
Recent reports regarding the debt collection practices of the merchant cash-advance industry have spurred greater public awareness of the chronic use of Confessions of Judgments by out-of-state creditors.
According to the reports, “legal loopholes” allow a lender to immediately seize a borrower’s assets and that a lender can do so without notice. This leaves borrowers with little or no chance of defending themselves. The reports added that lenders use the New York court system to avoid legal disputes in their debt collection claim, allowing for rushed judgment. They do so by executing on the judgment and restraining monies in their delinquent customers’ accounts. Lenders do this whether located in or outside of New York state.
The Proposed Bill
As a result of these “predatory lending policies,” New York governor Andrew Cuomo has announced a proposal to restrict the use of Confessions of Judgment in the state as part of his 2019 Justice Agenda. The proposal aims to help consumers and small business owners. It would restrict creditors that have no connections to New York, who use Confessions of Judgments to bypass debt collection.
The proposal states:
Firstly, New York will codify an FTC rule that prohibits confessions of judgments in consumer loans; secondly, prohibit the use of confessions of judgement in small business loans under $250,000, situations where business owners may struggle to afford representation and should not be forced into waiving their legal rights; and finally, stop lenders from exploiting New York courts for nationwide collections by requiring that any permissible confession of judgment enforced in New York courts have a nexus to business activity in New York.
You can read the full proposal here.
The proposed legislation as written covers much more than small business loans and out of state creditors. As written, the bill would also affect New York creditors who sell financial products and services.
As with everything, everyone suffers when systems or processes are abused. We will follow the bill closely to see if it will cause a true departure from Confessions of Judgments in New York as well as identify what changes will be made and how it will impact our clients.
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