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In a long article on Bloomberg News, but well worth the read:
How unscrupulous lenders have used an obscure legal document to wreck havoc against small businesses nationwide.
The lenders’ weapon of choice is an arcane legal document called a confession of judgment. Before borrowers get a loan, they have to sign a statement giving up their right to defend themselves if the lender takes them to court. It’s like an arbitration agreement, except the borrower always loses. Armed with a confession, a lender can, without proof, accuse borrowers of not paying and legally seize their assets before they know what’s happened. Not surprisingly, some lenders have abused this power. In dozens of interviews and court pleadings, borrowers describe lenders who’ve forged documents, lied about how much they were owed, or fabricated defaults out of thin air.
By seizing their bank deposits, Yellowstone had managed to collect its money ahead of schedule(60k on a 38k loan) and tack on $9,990 in extra legal fees, payable to a law firm in which it owns a stake. In about three months, the company and its affiliates almost doubled their money. At that rate of return, one dollar could be turned into 10 in less than a year.
Everyone else involved in the collection process got a slice, too. SunTrust got a $100 processing fee. Barbarovich’s office(NYC Marshal) got approximately $2,700, with about $120 of that passed along to the city. The Orange County Clerk’s office got $41 for its rubber stamps. The New York state court system got $184.
Cash-advance companies have secured more than 25,000 judgments in New York since 2012 worth an estimated $1.5 billion.
It sure explains why my small business gets a ton of loan/cash advance offers.
It should be noted that these letters have been prohibited in some states for over 50 years, and banned nationwide for consumers since 1984. (but even when banned by a state, they pursue it in a state where they are legal.)
(Score: 2) by DannyB on Wednesday November 21 2018, @03:01PM (5 children)
Despite my post about personal debt, I don't seem to have a problem with the idea that some businesses may take on reasonable amounts of commercial debt. But do so through a trustworthy commercial lender. Maybe have your business lawyer review things.
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(Score: 2) by RS3 on Wednesday November 21 2018, @04:09PM (4 children)
> Maybe have your business lawyer review things.
Generally I agree, but for a very small business, lawyer fees can be as much as the loan they wanted. And there's no guarantee the lawyer will be right- half of them lose in court every day. Well, roughly speaking; just making a point.
The problem, I believe, is in the fundamental structure of our "system". Clueless legislators in Ivory Towers, who are much too heavily influenced by lobby groups, dream up laws which are now far too complex for anyone to understand or untangle. The courts have to uphold them, and the lawmakers keep making new laws.
As I've commented before (and got modded funny), I believe the legislative process needs to become "agile"- learning and correcting as it goes. And when the laws are ridiculous, such as the concept of signing away rights, the legislature needs to force a correction.
We need an absolute law- a constitutional amendment- clearly stating that nobody can ever sign away the right to a court hearing.
(Score: 2) by suburbanitemediocrity on Wednesday November 21 2018, @04:52PM (1 child)
I've started a few businesses and have never paid more than $300 to lawyers. Hiring a lawyer to fill out your business paperwork is 2-3x this IIRC. Having a lawyer to look over a boilerplate contract is not going to cost that much.
(Score: 2) by RS3 on Wednesday November 21 2018, @05:29PM
That's good news. Maybe you live in a good area lawyer-wise. Around me, the rip-off stories abound. I still say that having a lawyer look over the boilerplate is not a guarantee that you'll be okay come court.
All that said, when I was in college one apartment's lease was very long and all unreadable legalese. One of the dozens of clauses stated that by signing this lease I was giving up my right to a writ of replevin. For those who don't know, it's a court order / process for recovering stolen or misappropriated items. The university had a campus student lawyer, who explained to me that people put all kinds of things in contracts which are not necessarily enforceable.
I wish the courts would not honor the "confession of judgment".
(Score: 2) by DannyB on Wednesday November 21 2018, @06:35PM (1 child)
Next best option then would be a commercial loan from a bank you've done business with, even personal business with, for a long time. If you have any real bank with such a relationship.
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(Score: 0) by Anonymous Coward on Thursday November 22 2018, @08:58AM
Yea! going into debt is awesome if you do it just right!