New York courts are very familiar with so-called “confessions of judgment.” Reportedly, they approved such judgments in favor of lenders more than 11,000 times last year.
That magnitude of use for this legal instrument has clearly troubled regulators and criminal authorities, especially in New York. A recent in-depth media spotlighting of confessions of judgment stresses that actors within the cash-advance lending industry that execute such agreements with debtors – especially small businesses – are now being closely investigated.
The publication Crain’s New York Business reports that probes into the largely unregulated cash-advance market have been initiated by multiple entities. Those include the U.S. Federal Trade Commission, the New York Attorney General’s Office, the Manhattan District Attorney’s Office and the New York Police Department.
The stated concern of investigative organs is that the comparatively lax regulatory oversight attached to high-interest cash-advance lenders can make business borrowers easy targets for unfair and deceptive practices.
Moreover, debtors signing a confession of judgment effectively sign away all rights to dispute a claim with a lender in the future. As underscored above, thousands of lenders have gone to New York courts to enforce such judgments. Crain’s states that the New York AG’s probe is reportedly examining “whether cash-advance lenders are abusing the state’s court system.”
Businesses that are not large or well established often turn to secondary lending sources that offer quick though pricey financing vehicles. The Crain’s article notes that those funding entities are “accustomed to operating in the shadows.”
The multiple investigatory probes now underway in New York are clearly focused on putting the cash-advance industry under a bit of illuminating light.
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