> The lenders’ weapon of choice is an arcane legal document called a confession of judgment. Before borrowers get a loan, they have to sign a statement giving up their right to defend themselves if the lender takes them to court. It’s like an arbitration agreement, except the borrower always loses. Armed with a confession, a lender can, without proof, accuse borrowers of not paying and legally seize their assets before they know what’s happened.
This is nuts. It says "they HAVE TO sign a statement giving up their right to defend themselves if the lender takes them to court." (capitalization is mine).
Does anyone know if the borrower can refuse to sign and still get the loan?
Also why is this arcane clause still in the loan docs? And do mortgage loans also have this?
No reputable loan would have this kind of clause, and no one should ever even consider signing such a thing.
It’s a testament to the miserable state of financial education, poor regulation, and even a corrupt legal system that is willing to even entertain such a document.
Allowing a document like this in court is like letting desperate people sell their organs for cash. It stinks to high heavens, and it seems obvious there’s plenty of fraud at Yellowstone for a decent honorable DA to bring down a hammer on these guys. But will they? Don’t hold your breath.
We live in a world where arbitration clauses are expected, so what does that tell you?
They start as one entity's predatory practice, but when they work in court, they spread rapidly and become a standard that you simply have to deal with.
Edit: This is also a world where student date can never be discharged because that's what the lenders wanted and they wrote the law.
I looked in to this in general a couple years ago. At least that that time the lending agencies that were NOT banks and actually HAD public statements as to the terms/conditions being offered __ALL__ included that. You might just not see them in Stripe/PayPal worded as such, but the liability is pushed entirely on the seller.
This is where a contractual fulfillment tracking system would be useful, a matter of public record as to whom is paying whom and if the other side(s) in the transaction held up their end of the deal. The sort of thing that witnesses would sign; like your bank, their bank, and regulatory organizations (for some special or large value transactions).
It's nothing about "financial education", it's about an artificial right being created by a dysfunctional government and granted to thieves. Common law prohibits "unconscionable contracts", and this is surely one.
IANAL, but this seems pretty vulnerable to countersuit. If you have the terms of your loan and proof you paid, it doesn't matter if you sign a confession of guilt.
Practically speaking, it's still not possible for most people to defend. Lawyers cost money, and you're trying to sue who just took all yours.
It's a testament to a corrupt legal system and poor regulation, that's for sure. It's a predatory practice and no doubt brings revenue to Orange County NY and other places.
However this isn't really about financial education. For many people, if there's even a slim hope of a business succeeding, the fees and risks associated with an absurd loan are preferable to being forced to close the business. The anecdotes are almost always of the form "we just needed a small liferaft until business picks up. Once business is good, we can pay it off." That's human nature to an extent.
And there are plenty of war stories in “business success” books where $founder leveraged his credit cards and mortgages to the hilt, before the wave broke to
make him a billionaire.
They curiously tend to avoid mentioning that, 9 times out of 10, that sort of behaviour ends up in bankruptcy and tears.
This is absolutely not legal advice, but this author misunderatands what a confession of judgment is. A confession would be void if signed prior to debt being due, because you can only confess to debt that is defaulted on. See: https://oregoncivpro.com/orcp-73-judgments-by-confession/
“B(4) it must have been executed after the date or dates when the sums described in the statement were due.”
I am assuming most states share this rule, but I could be wrong.
I would suspect the businesses involved rely on legal costs preventing things from even getting to the point of the confession of judgment being declared void.
Even if they have to sign it to get the loan, there’s a straightforward solution: don’t get the loan. This wasn’t a mugging. Nobody put a gun to anyone’s head to force them to do anything here. This loan industry is scummy and shameful, and it’s tactics should be curtailed, but the small business owners had agency: they ultimately made the decision.
This is nuts. It says "they HAVE TO sign a statement giving up their right to defend themselves if the lender takes them to court." (capitalization is mine).
Does anyone know if the borrower can refuse to sign and still get the loan?
Also why is this arcane clause still in the loan docs? And do mortgage loans also have this?