A confession of judgment is the single most dangerous clause in any merchant cash advance agreement, and most business owners sign it without reading it. The document does what its name suggests. It confesses judgment on your behalf, in advance, before any dispute arises, before you miss a single payment, before you have had the opportunity to tell your side of anything at all.
What follows are eight facts that every business owner holding an MCA contract ought to understand, not in the abstract, but as a matter of immediate financial survival.
The Confession Waives Your Right to Defend Yourself
By executing a confession of judgment, you authorize the MCA funder to obtain a court judgment against you and your business without filing a lawsuit, without serving you with papers, and without ever appearing before a judge. In New York, under CPLR 3218, the funder files the affidavit with the county clerk, and the judgment enters as though a trial had occurred and you had lost. You receive no notice. There is no hearing. The first indication that something has gone wrong arrives when your bank account is frozen or a lien appears on your property.
This is not a theoretical concern. It is routine practice.
New York Courts Have Been the Preferred Filing Venue
For years, MCA companies concentrated their confession of judgment filings in New York, regardless of where the borrower actually lived or operated. A restaurant owner in Texas, a contractor in Florida, a salon operator in Ohio, each would discover that a judgment had been entered against them in a New York county they had never visited. The MCA agreements contained New York choice of law provisions and forum selection clauses designed to produce exactly this result.
Bloomberg’s 2018 investigation brought national attention to the practice. The reporting documented how New York county clerks’ offices were processing confessions of judgment in volume, often with minimal scrutiny, creating a conveyor belt of enforceable judgments against out of state businesses that had no practical means of contesting them.
The 2019 Reform Addressed Only Part of the Problem
Governor Cuomo signed legislation in August 2019 amending CPLR 3218 to prohibit the filing of confessions of judgment against borrowers who do not reside in New York. Under the amended statute, a confession of judgment affidavit may only be filed in the county where the defendant resided when the affidavit was executed, or where the defendant resides at the time of filing.
The reform was significant for out of state borrowers. For New York based businesses, the exposure remains exactly what it was before the amendment. If your business operates in New York, you remain subject to the full weight of CPLR 3218. The statute did not cap amounts, did not impose procedural safeguards, and did not require that the funder demonstrate default before filing.
One might have expected broader reform. It has not materialized. Senate Bill S2305, introduced in 2025, would extend certain protections, but as of this writing it has not advanced.
The Yellowstone Capital Case Changed the Calculus
In January 2025, Attorney General Letitia James announced a settlement exceeding one billion dollars against Yellowstone Capital and its network of affiliated entities. The settlement cancelled outstanding debts owed by small businesses, vacated more than 1,100 judgments in New York, and permanently banned the companies and their officers from the MCA industry. The Attorney General’s investigation had revealed interest rates reaching several hundred percent annually on loans that Yellowstone had structured to resemble merchant cash advances.
The case confirmed what practitioners had observed for years. Confessions of judgment were not incidental to the MCA business model. They were the enforcement mechanism that made the entire structure viable. Without the ability to obtain judgments instantaneously and freeze accounts without notice, the economics of high rate short term funding would not sustain themselves.
That settlement did not end the practice. It ended one company’s use of the practice.
Your Personal Guarantee Compounds the Exposure
Most MCA agreements require the business owner to sign a personal guarantee alongside the confession of judgment. The distinction matters enormously. The confession is not limited to the business entity. It reaches your personal bank accounts, your personal property, your personal credit. A judgment entered on a confession that includes a personal guarantee means the funder can pursue collection against everything you own, not merely the assets of the business.
I have seen business owners who believed they were insulated by their LLC structure discover otherwise. The personal guarantee collapses the separation between the entity and the individual, and the confession of judgment ensures that this collapse occurs without any judicial oversight.
Vacating a Confession of Judgment Is Possible but Difficult
Courts do vacate confessions of judgment, though the burden falls on the business owner. Under New York law, a motion to vacate requires demonstrating either a defect in the affidavit itself, that the funder failed to comply with the statutory filing requirements, or that there exists a meritorious defense to the underlying claim. Fraud in the inducement, for instance, or a showing that the MCA was actually a disguised loan subject to usury limits.
The procedural reality is that you are moving to undo a judgment that already exists. The court does not start from a neutral position. You are asking it to retract something that was entered in compliance with a statute that authorizes precisely this kind of filing. Timing matters considerably. The longer a judgment stands, the more difficult vacatur becomes, particularly if the funder has already executed on the judgment by freezing accounts or filing liens.
The Federal Trade Commission Ban Does Not Apply
Business owners sometimes believe that confessions of judgment are illegal. They are not, at least not in the commercial context. The FTC’s Credit Practices Rule prohibits confessions of judgment in consumer contracts. But MCA agreements are commercial instruments, and the FTC ban does not extend to them. This gap in federal protection is the reason that reform has proceeded state by state, with uneven results.
Massachusetts and Florida have banned confessions of judgment in commercial contracts. Most states have not. The patchwork means that the enforceability of a confession depends less on any universal principle of fairness and more on the particular jurisdiction whose law governs the agreement. Which jurisdiction that turns out to be is itself a product of the contract’s choice of law clause, which the funder drafted.
There is a circularity to the arrangement that would be elegant if it were not so consequential.
Early Legal Intervention Changes Outcomes
The window for effective action against a confession of judgment is narrow, and it closes faster than most business owners expect. Before a judgment is filed, counsel can negotiate removal of the confession clause, restructure the payment terms, or challenge the characterization of the MCA as something other than a loan. After a judgment is filed, the options constrict to vacatur motions and emergency stays, both of which require showing grounds that would not have been necessary had the matter been addressed earlier.
The economics of the situation favor early engagement. An MCA defense attorney retained before default can identify deficiencies in the agreement, preserve defenses that might otherwise be waived, and position the business owner to contest a confession before it becomes a judgment rather than after.
We handle these matters because the consequences of inaction compound. A consultation costs nothing and assumes nothing. It is the point at which the conversation shifts from worry to strategy.
