A confession of judgment is the clause in your MCA contract that lets the funder take a judgment against you without ever notifying you, without filing a lawsuit you can answer, and without a hearing. It is one of the most consequential provisions in commercial finance, and most business owners sign it without recognizing what it is.
Eight facts about confessions of judgment belong in every business owner’s working knowledge before they sign anything, and before they receive a collection notice about one that already exists.
How a Confession of Judgment Works
The mechanism is straightforward. The MCA contract contains a clause — often buried in a paragraph about remedies or defaults — in which the business owner authorizes the funder’s designated attorney to appear in any court, confess judgment on the owner’s behalf, and obtain a judgment for the full outstanding balance, plus fees and interest, without prior notice or hearing. The business owner has pre-authorized a judgment against themselves by signing the contract.
When the funder decides to act on that clause, the attorney files the confession with the court clerk. No complaint is served. No summons is issued. A judgment appears on the docket without the defendant ever being informed.
New York Restricted the Practice in 2019, But Did Not End It
Between 2014 and 2018, MCA funders filed more than 25,000 confessions of judgment in New York courts against businesses in other states, totaling an estimated one and a half billion dollars in obligations imposed on business owners in Texas, Florida, California, and elsewhere. Investigative reporting by Bloomberg in 2018 drew national attention to the practice.
In August 2019, New York amended CPLR Section 3218 to prohibit confessions of judgment against defendants who do not reside in New York. That restriction reduced the practice substantially for out-of-state defendants. For businesses operating within New York, confessions of judgment remain a live instrument under current law.
A Judgment Can Be Entered Before You Know the Funder Is Pursuing It
Because the confession of judgment procedure bypasses the standard litigation process, you may first learn of the judgment when your bank account is frozen. The account restraint is not a warning. It is the consequence of a judgment that is already docketed, already enforceable, and already being executed. The interval between the funder’s decision to act and the restraint of your accounts can be measured in days.
The Yellowstone Settlement Changed the Landscape for Existing Judgments
In January 2025, the New York Attorney General announced a settlement exceeding one billion dollars against Yellowstone Capital and affiliated entities. As part of that settlement, more than 1,100 judgments entered against New York businesses were vacated, and over 18,000 merchants received some form of debt discharge. The scale of that action reflected regulatory findings that the underlying agreements were loans, not purchases of receivables, and that the confessions rested on void obligations.
Vacatur Is Possible on Multiple Grounds
A confession of judgment can be challenged on procedural and substantive grounds. Procedural defects include filing after the three-year validity window in CPLR Section 3218, improper notarization, failure to identify the defendant’s residence, or filing against an out-of-state defendant after the 2019 ban. Substantive defenses — criminal usury, fraud, unconscionability — require a separate plenary action rather than a motion under CPLR Section 5015.
In a case the Lexology legal research service identified as significant, a New York Supreme Court vacated a confession of judgment precisely because the underlying MCA agreement was found to be a criminally usurious loan. The confession entered on a void obligation was itself void.
The FTC Has Entered the Enforcement Space
In October 2023, the Federal Trade Commission announced a permanent ban against a merchant cash advance owner, Jonathan Braun, and in February 2024, a federal court entered a judgment requiring him to pay more than twenty million dollars in monetary relief and civil penalties. The FTC’s case documented unauthorized seizure of personal and business assets, misrepresentation of terms, and abuse of the confession of judgment mechanism. Federal enforcement adds a parallel layer of scrutiny to MCA collection conduct that state-level practice alone did not provide.
California Now Extends Consumer-Style Protections to MCA Borrowers
As of January 1, 2025, California’s Rosenthal Fair Debt Collection Practices Act was extended to apply to small business debts, including merchant cash advances. California-based business owners can now demand debt verification, challenge harassing collection conduct, and report violations to state regulators. This does not eliminate confession of judgment exposure in contracts with New York forum selection clauses, but it creates an independent avenue for relief that did not previously exist.
Emergency Relief Is Available If Accounts Are Already Frozen
If a bank account has been restrained pursuant to a judgment you were not aware of, the procedural tools for emergency relief exist. An order to show cause with a temporary restraining order, filed with the court that entered the judgment, can lift the freeze pending a full hearing on vacatur. Timing is critical. The longer the restraint persists, the more harm accumulates and the more difficult the business’s position becomes.
An account freeze does not mean the judgment is unassailable. It means the clock for challenging it is already running.
Consultation is where this conversation begins. Whether you are signing an MCA agreement or receiving a collection notice on one, the confession of judgment clause deserves specific legal attention.
