This article describes what is essentially a scam operation, dressed up in legal garb, aimed at exploiting desperate borrowers looking for short-term funds to help fund their business operations.

No one signs up to a loan charging 350% annual interest who is not desperate.

No doubt the arrangement is structured in a way that also circumvents usury laws of various jurisdictions.

The confession of judgment form is an integral part of the abuse inflicted on borrowers here. This is indeed a long-standing legal vehicle, perfectly legal in itself, by which a lender can go to court and get an ex-parte judgment (that is, a judgment following an application process by which only one party appears and no one is there to oppose the application or contest it in any way) in highly expedited fashion. With a confession of judgment, actual review by a judge is bypassed altogether in most cases and a clerk performs a ministerial act to enter it. By ministerial, I mean that no one attempts to evaluate anything other than to determine that the form itself is indeed a confession of judgment and that is it signed by the party purporting to confess judgment. Once such a judgment is entered, it has all the attributes of any other judgment and can be used to seize assets and otherwise employ the full range of means by which it can be enforced against a judgment debtor.

A confession of judgment can serve a legitimate purpose. Very often, when litigation is settled, a party cannot pay a given amount in full but agrees that he owes it and promises to pay it over time in installments as part of the settlement. Rather than entering into a stipulated judgment that becomes public record to document the debt, the parties will agree, in effect, to keep it off the public record by signing both a formal settlement agreement and also a confession of judgment providing that the debtor confesses judgment for the full amount of the debt. The settlement agreement will in turn define the conditions by which the confession of judgment may be filed and an actual judgment obtained. Typical terms provide that it can in no case be filed as long as payments under the arrangement are being timely made but can be filed (either with no notice or with a very short notice) if the debtor defaults under the arrangement (even then, any payments actually made must be credited to reduce the amount of the balance that becomes part of any judgment). If the debtor pays everything off in full and on time, then the confession of judgment can never be filed or used in any manner. If someone tries to file it and obtain a judgment contrary to the agreement, severe consequences follow to punish the party abusing the process.

That sort of limited use is helpful in resolving disputes while limiting harm to debtors who wind up having to sign such things. Attorneys are typically involved who, in effect, assume fiduciary duties not to abuse the process. In this sense, and for such uses, the confession of judgment is a tried, tested, and useful part of our U.S. legal system. It goes back many decades, if not centuries, in the English common law.

In contrast, what is described in this article makes a mockery of our legal system. There you have a shady business that incorporates the confession of judgment into every loan as a matter of routine and effectively sets up a process where even a minor missed payment can result in devastation and ruin to a debtor with no notice, no opportunity to be heard, and no defense. When you add to this their institutional practices of conveniently fabricating evidence to justify use of the confession, you turn the full force of the law against a hapless and defenseless debtor who innocently assumed that normal loan rules would apply.

If this is technically legal under New York law (don't know), it is a practice that can be banned by legislative action. There are all sorts of cases in which a technically binding contract is nonetheless barred from enforcement because it violates public policy. I suppose there may be arguments on the lender's side to support this sort of practice but I can't imagine they would be compelling. Time for lawmakers to apply a fix either by banning the practice or, at the least, by requiring some strong form of disclosure of the risks.

Of course, the real issue here is the problem with being a desperate borrower. The more life experience I get, the more I am dismayed by how vile people can sometimes be. It is truly depressing to watch.