A confession of judgment already entered feels permanent. It is not. The statute that authorizes confessions of judgment also provides procedural and substantive grounds for challenging them, and the case law developed over the last several years has added defenses that did not exist in meaningful form a decade ago.

Seven defenses against a merchant cash advance confession of judgment are worth understanding in detail.

Criminal Usury

Where the MCA agreement is recharacterizable as a loan — fixed daily debits regardless of actual revenue, full personal recourse in insolvency, no genuine reconciliation mechanism — and the effective annual interest rate exceeds twenty-five percent, the agreement violates New York’s criminal usury statute. An obligation that violates the criminal usury statute is void, not merely unenforceable or reducible. A confession of judgment entered on a void obligation is itself void. New York courts, including a Supreme Court ruling identified in Lexology’s legal reporting, have vacated confessions on exactly this ground.

Fraudulent Inducement

If the funder or broker made material misrepresentations to obtain your signature — about the cost of the advance, the nature of the reconciliation right, the effective annual rate, or the existence of the confession clause itself — the contract was induced by fraud. Fraud in the inducement voids the contract at the injured party’s election. A voided contract cannot support a confession of judgment, and a fraudulent inducement defense can be raised in the plenary action required to challenge the confession on substantive grounds.

This defense requires specific factual allegations. “They misled me” is not a pleading. The representations, who made them, when, and how they differed from the contract’s actual terms are the details that make the defense viable.

Procedural Defects in the COJ Filing

CPLR Section 3218 imposes specific requirements on confessions of judgment. The affidavit must be executed by the defendant, notarized with a wet-ink signature, filed within three years of execution, and must identify the defendant’s residence. For out-of-state defendants, the confession is prohibited entirely under the 2019 amendment.

Defects in any of these requirements are grounds for vacatur by motion under CPLR Section 5015, without the need for a full plenary action. Courts have granted motions to vacate based on improper notarization, stale filing dates, missing residency identification, and the straightforward violation of the 2019 statutory prohibition for out-of-state defendants.

Unconscionability

A contract is unconscionable when its terms are so one-sided that no person of reasonable intelligence and judgment would agree to them in an arm’s-length transaction. Courts examine both procedural unconscionability — the circumstances surrounding signing, including unequal bargaining power, time pressure, and absence of meaningful choice — and substantive unconscionability, meaning the terms themselves. Confessions of judgment in MCA agreements frequently present both: high-pressure broker sales processes and contract terms that eliminate the borrower’s procedural rights entirely.

Breach of the Reconciliation Provision

If the MCA agreement contains a reconciliation clause requiring the funder to adjust daily debits when actual sales volume declines, and the funder failed to honor that provision, the funder was in breach before it entered the confession. A confession entered in the name of enforcing an agreement that the funder itself breached is procedurally and substantively vulnerable. This defense requires documentation of the revenue decline and the funder’s refusal to reconcile.

The COJ Predated a Qualifying Event

Some funders enter confessions of judgment before an actual default has occurred, relying on broadly drafted default provisions or on technical defaults unrelated to payment. Where the confession was entered without an actual triggering event under the agreement’s terms, that is a challenge to the funder’s authority to file, and can support both a vacatur motion and a counterclaim for wrongful execution.

A confession of judgment entered before a genuine default is not a remedy. It is an unauthorized act that the legal system has tools to address.

Discharge in Connection With Regulatory Settlement

Following the Yellowstone settlement in January 2025, more than 1,100 judgments against New York businesses were vacated by court order as part of the settlement’s terms. If your judgment was entered by a Yellowstone-affiliated entity, the vacatur may have already occurred or may be available through a straightforward application to the court. Confirming the status of any Yellowstone-related judgment is a priority, not a contingency.

Each of these defenses applies differently depending on the facts of the specific agreement and the circumstances of the confession’s filing. A consultation identifies which defenses carry the most weight in your situation.

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