Confessions of judgment have survived in commercial practice for over a century. Their use in merchant cash advance agreements accelerated their scrutiny from a theoretical debate about due process into a documented enforcement crisis that drew federal attention, state legislative action, and a billion-dollar settlement from a single funder.

Five reasons explain why the pressure on COJs has become structural rather than episodic.

The Due Process Problem Is Real and Has Been Named

A confession of judgment waives the defendant’s right to notice and an opportunity to be heard before a judgment enters. Courts have tolerated this waiver in commercial contexts on the theory that sophisticated parties can contractually surrender procedural rights. But MCA borrowers are rarely sophisticated in the relevant sense. They are small business owners under financial pressure, signing documents presented by brokers who receive commissions for closing deals, operating on the assumption that the “future receivables purchase” framing reflects something other than a high-cost loan.

The constitutional argument is that a waiver of due process rights is not enforceable when it is not knowing and voluntary, and when it is embedded in a transaction the courts have increasingly found to be a disguised loan. You cannot waive defenses under an agreement that is void. That argument has not been uniformly adopted, but it has been taken seriously by courts that have vacated COJs on substantive usury grounds.

The Bloomberg Investigation Documented the Scale of the Problem

In 2018, Bloomberg published a series of investigations documenting how New York confessions of judgment were being used to strip bank accounts of small business owners across the country, often within hours of the first missed payment, and sometimes before any default had occurred. The reporting identified funders that filed confessions as a first collection tool rather than a last resort, using them to freeze accounts while simultaneously offering to “resolve” the debt for a percentage of the original balance.

That reporting produced the 2019 New York legislative amendment that banned out-of-state confessions. It also created a public record that regulators, litigants, and courts have cited in subsequent proceedings.

The Yellowstone Settlement Established That the Underlying Agreements Were Loans

When the New York Attorney General settled with Yellowstone Capital and its affiliated network in January 2025 for a figure exceeding one billion dollars, the legal theory underlying the settlement was that the MCA agreements were not purchases of receivables but rather illegal loans carrying effective annual rates that violated criminal usury statutes. More than 1,100 judgments — most of them confessions — were vacated as part of that resolution.

A confession of judgment on a void obligation is itself void. The Yellowstone settlement made that principle concrete at a scale that changed the evidentiary and political environment for every subsequent COJ dispute.

Federal Enforcement Has Made the Practice Personally Costly for Funders

The FTC’s enforcement action against Jonathan Braun, which concluded with a federal court judgment requiring payment of more than twenty million dollars in February 2024, established that the individual principals behind abusive MCA operations face personal liability. Braun was permanently banned from the industry. The FTC’s case documented unauthorized debits, threats against business owners and their families, and systematic misuse of the confession mechanism to seize assets beyond what the agreements authorized.

Personal liability for the funder’s principals changes the calculus. An industry defended by the argument that it operates within the law becomes harder to defend when its practitioners are personally enjoined and monetarily penalized by federal courts.

State Legislatures Are Continuing to Act

New York’s 2019 amendment addressed out-of-state defendants but left the in-state mechanism intact. Senate Bill S2305, introduced in the 2025 legislative session, proposes to extend the restriction to certain categories of in-state debt. California extended consumer-style protections to MCA borrowers effective January 1, 2025. Several other states have introduced or are considering disclosure requirements, usury analysis, and outright prohibition of COJ clauses in small business financing.

The legislative direction is consistent across jurisdictions that have examined the practice closely. The question is not whether additional restrictions will come, but when.

A first conversation about an existing confession of judgment or an MCA contract that contains one costs nothing and begins to clarify what options exist.

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