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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: 3, Informative) by Whoever on Wednesday November 21 2018, @05:14PM (2 children)
The US Supreme court has upheld the use of arbitration in contracts. Why would this be different?
(Score: 1, Informative) by Anonymous Coward on Wednesday November 21 2018, @09:10PM (1 child)
Because arbitration clauses don't completely destroy your right to a fair trial. You can still challenge an arbitration in court, it is just much more difficult. Without some sort of obvious defect in the arbitration, your chances are very slim. It is important to note, that bias of the arbitrator or being denied a chance to present evidence or defend yourself are grounds to overturn an arbitration.
A confession of judgment, on the other hand, completely waives your right to defend yourself. There is an example below. The problem with that is you cannot defend yourself at all. Even if they forge documents or perjure themselves, there is no remedy until after you receive notice of execution, which happens AFTER they take your stuff. For that reason, they cannot be used against individuals. Even the states that do allow them against companies and other entities are starting to reign in their use because the abuse is getting too rampant and lenders keep having problems with manufacturing evidence that don't become apparent until years later on appeal.
(Score: 0) by Anonymous Coward on Wednesday November 21 2018, @09:12PM
Darn it, used the wrong homophone. Should be "rein in" not "reign in"