Confessions of judgment were once the quiet machinery behind merchant cash advance enforcement, a document most borrowers signed without understanding and most courts processed without questioning. That silence has ended. From legislative chambers to county clerks’ offices to the attorney general’s desk, the confession of judgment has become the focal point of a broader reckoning with how the MCA industry operates.
Five forces are converging to place this instrument under sustained pressure.
Investigative Reporting Exposed the Scale
Bloomberg Businessweek’s 2018 series on confessions of judgment did what years of quiet suffering by small business owners had not. It made the practice visible. The reporting documented how MCA funders had concentrated their filings in a handful of New York counties, targeting businesses across the country that had no practical means of contesting a judgment entered in a state they had never set foot in. The numbers were striking. Filings that had barely registered before 2014 had grown into the thousands by 2017 and continued to climb.
The series named companies, named borrowers, described forged documents and fabricated defaults. It described lenders who accused borrowers of nonpayment without proof, then seized their assets before any notification arrived. Three New York county clerks responded by halting processing of most confession of judgment filings, and those three counties had been handling nearly half of the industry’s caseload.
Journalism does not change statutes. But it creates the conditions under which statutes change. That is precisely what happened in the following year.
New York’s 2019 Reform Set a Precedent
Governor Cuomo signed legislation amending CPLR 3218 in August 2019, prohibiting the filing of confessions of judgment against borrowers who do not reside in New York. The reform was narrow in scope. It addressed the jurisdictional abuse, the practice of dragging out of state business owners into New York courts, but it did not disturb the underlying mechanism for in state borrowers.
Still, the significance extended beyond its immediate terms. New York had been the preferred forum for MCA enforcement precisely because CPLR 3218 made confession filing frictionless. By restricting that access, the legislature acknowledged what the industry had denied: that the practice as conducted was not mere contract enforcement but a form of systemic coercion directed at businesses with no realistic capacity to respond.
Other States Followed
The New York reform was not an isolated event. New Jersey prohibited confessions of judgment in business financing contracts in 2020. Texas, through House Bill 700, declared commercial sales based financing contracts containing confession of judgment provisions void and unenforceable. The trend is not universal, and many states have taken no action, but the direction of movement is unambiguous.
California’s approach has been different but complementary. As of January 2025, the Rosenthal Fair Debt Collection Practices Act extends consumer style protections to small business debts, including merchant cash advances. This does not ban confessions of judgment directly, but it creates a regulatory framework in which aggressive collection tactics face new constraints. A borrower in California can now demand debt verification and challenge collection practices that would have gone unchecked two years ago.
In New York itself, the FAIR Business Practices Act amended General Business Law Section 349 to protect small businesses from unfair or abusive acts, removing the prior requirement that enforcement be limited to consumer oriented conduct. The walls are closing from multiple directions.
The Yellowstone Settlement Demonstrated Consequences
When Attorney General James announced the settlement with Yellowstone Capital in January 2025, the numbers commanded attention. A judgment exceeding one billion dollars. Cancellation of outstanding debts. Vacatur of more than 1,100 judgments in New York alone. A permanent industry ban for the companies and their officers. The investigation had revealed loans structured to resemble merchant cash advances while carrying interest rates that reached several hundred percent annually.
The confession of judgment was central to the scheme. Without the ability to obtain instantaneous judgments and freeze accounts before borrowers could respond, the entire business model would have required different economics, or at least different risk tolerances. The settlement did not merely punish one company. It established a template for how attorneys general can dismantle MCA operations built on confession of judgment enforcement.
I would not overstate the deterrent effect. But I would not ignore it either.
Courts Are Scrutinizing What They Once Rubber Stamped
The judicial attitude toward confessions of judgment has shifted in ways that do not appear in statutory language. Motions to vacate that might have been denied summarily five years ago now receive closer attention. Courts are examining whether the underlying MCA agreement is actually a loan subject to usury limits, whether the confession was obtained through fraud or misrepresentation, whether the funder’s conduct transforms what was styled as a purchase of receivables into a lending relationship.
The recharacterization argument has proven particularly effective. If a court determines that the MCA is a loan in disguise, the entire contractual framework, including the confession of judgment, becomes subject to regulations the funder structured the deal to avoid. Usury caps apply. Licensing requirements apply. The confession, which was drafted on the assumption that the transaction would be treated as a commercial purchase, loses its legal footing.
None of this means confessions of judgment are finished. They remain enforceable in many jurisdictions and under many circumstances. But the era in which they operated as an invisible, unquestioned enforcement mechanism has passed. The instrument is visible now, and visibility invites scrutiny.
For business owners holding MCA agreements that contain confession of judgment clauses, the shifting landscape creates opportunities that did not exist even recently. An experienced MCA attorney can evaluate whether the agreement is vulnerable to challenge under current law, and that evaluation begins with a conversation. A first call costs nothing and assumes nothing.
