This article describes what is essentially a scam operation, dressed up in legal garb, aimed at exploiting desperate borrowers looking for short-term funds to help fund their business operations.
No one signs up to a loan charging 350% annual interest who is not desperate.
No doubt the arrangement is structured in a way that also circumvents usury laws of various jurisdictions.
The confession of judgment form is an integral part of the abuse inflicted on borrowers here. This is indeed a long-standing legal vehicle, perfectly legal in itself, by which a lender can go to court and get an ex-parte judgment (that is, a judgment following an application process by which only one party appears and no one is there to oppose the application or contest it in any way) in highly expedited fashion. With a confession of judgment, actual review by a judge is bypassed altogether in most cases and a clerk performs a ministerial act to enter it. By ministerial, I mean that no one attempts to evaluate anything other than to determine that the form itself is indeed a confession of judgment and that is it signed by the party purporting to confess judgment. Once such a judgment is entered, it has all the attributes of any other judgment and can be used to seize assets and otherwise employ the full range of means by which it can be enforced against a judgment debtor.
A confession of judgment can serve a legitimate purpose. Very often, when litigation is settled, a party cannot pay a given amount in full but agrees that he owes it and promises to pay it over time in installments as part of the settlement. Rather than entering into a stipulated judgment that becomes public record to document the debt, the parties will agree, in effect, to keep it off the public record by signing both a formal settlement agreement and also a confession of judgment providing that the debtor confesses judgment for the full amount of the debt. The settlement agreement will in turn define the conditions by which the confession of judgment may be filed and an actual judgment obtained. Typical terms provide that it can in no case be filed as long as payments under the arrangement are being timely made but can be filed (either with no notice or with a very short notice) if the debtor defaults under the arrangement (even then, any payments actually made must be credited to reduce the amount of the balance that becomes part of any judgment). If the debtor pays everything off in full and on time, then the confession of judgment can never be filed or used in any manner. If someone tries to file it and obtain a judgment contrary to the agreement, severe consequences follow to punish the party abusing the process.
That sort of limited use is helpful in resolving disputes while limiting harm to debtors who wind up having to sign such things. Attorneys are typically involved who, in effect, assume fiduciary duties not to abuse the process. In this sense, and for such uses, the confession of judgment is a tried, tested, and useful part of our U.S. legal system. It goes back many decades, if not centuries, in the English common law.
In contrast, what is described in this article makes a mockery of our legal system. There you have a shady business that incorporates the confession of judgment into every loan as a matter of routine and effectively sets up a process where even a minor missed payment can result in devastation and ruin to a debtor with no notice, no opportunity to be heard, and no defense. When you add to this their institutional practices of conveniently fabricating evidence to justify use of the confession, you turn the full force of the law against a hapless and defenseless debtor who innocently assumed that normal loan rules would apply.
If this is technically legal under New York law (don't know), it is a practice that can be banned by legislative action. There are all sorts of cases in which a technically binding contract is nonetheless barred from enforcement because it violates public policy. I suppose there may be arguments on the lender's side to support this sort of practice but I can't imagine they would be compelling. Time for lawmakers to apply a fix either by banning the practice or, at the least, by requiring some strong form of disclosure of the risks.
Of course, the real issue here is the problem with being a desperate borrower. The more life experience I get, the more I am dismayed by how vile people can sometimes be. It is truly depressing to watch.
Ultimately, this is a consequence of out-of-control complexity in the legal system in America (and, I think, in many other countries). The current status quo is that in order to do many commonplace things, you will be required to sign long, arcane legal documents that are difficult or impossible for people without specialist knowledge to understand, and which in most cases you have no real negotiating power to argue against.
And so people don't read them. You can't.
When my wife and I sat down to buy our first house, we planned to read every document before signing it. The mobile notary they sent to our house was aghast. He was like, "Uh, I guess if you want to try, I can leave these here and try to come back in 8 hours or so, but obviously I will not stay here while you read everything you sign." Even if we had read it, what are the odds that we could've found some gotcha clause dressed up in weird language in that mound of documents?
When the status quo is for people to sign documents that they have not fully read or understood, things like this are going to happen.
There are a couple of solutions, neither of them perfect:
1. We need lawyers-in-a-box that can protect us from the most outrageous abuses. You should be able to point your smartphone at a Confession of Judgment and your phone should make a big red X and say, "WARNING! This kind of document is considered predatory! Exercise extreme caution before you sign it!" (You should also be able to get one that would tell you that the non-compete they want you to sign in California is not binding, that this contract contains a mandatory arbitration clause, and other things like that).
2. But that would only help a little bit. Ultimately, we would need to really rework the legal code in ways that I think everyone is more than a little uncomfortable with.
> 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?
I'm sorry, but the fact is that all lenders and banks are like this.
I once missed 3 payments in a row during the last 6 months of a five year car loan (never missed any other payments). OK, not great, my bad (hey, I was broke). The GMAC loan company then set The Machine in action. My car was repossessed as one would expect. However, everything was stacked against me recovering the car: It was sent 100 miles away to be auctioned off, with any amount of the loan not covered to still be owed by me. Yes, they could sell the car for $10, and I'd owe the rest. To get the car back, I needed to pay off the rest of the car loan in full, plus interest, plus penalties, plus "storage" fees (per day - this really pissed me off), the city of Menlo Park charged me with something as well because of the tow, and I had to get myself out to Vacaville somehow and go to the regional distribution center with all the paperwork to get the car.
This happens so infrequently, the people there were shocked when I showed up (I had gotten a loan from a friend, and spent a week on the phone getting it done before they auctioned the car). Standing in the line with all the dealers looking for cheap cars at auction and repo men who just arrived with BMW's they just stole (ahem, recovered) that morning. It was surreal. They had my car in the middle of a sea of other repossessed vehicles parked bumper to bumper. It took them an hour or so just to fish it out. All my possessions in the car had been thrown away.
This doesn't compare to the horror stories from the subprime loan craziness, nor the abuse in the article, but it just shows that when you take a loan, you are at the mercy of the lender, and they are never merciful. They are normally giant corporations who farm out the work to thousands of happy conspirators who make a living from other people's misery, justifying it because the person who took the loan must somehow deserve the treatment.
What a sad state of affairs. Predatory contracts are one thing, but why on earth do we as a society more or less ignore white collar crime? The article just glosses over the fact that in the Duncan's case, the agreement sent to the court was a forgery. And I can't even blame the author for not making more of a big deal about that because most people don't see that as seriously as they ought to.
If you go into a bank, completely unarmed and pass a note to a teller demanding money, you'll be locked away for years for stealing what in most cases is only a few thousand dollars. Whoever forged that document stole ~$60,000 and no one seems interested in doing anything more than issue a sternly worded "don't do that again".
What is it going to take to get society to get its act together and actually start enforcing the law when it comes to white collar crime? If the details of this article are correct, there are several employees of Yellowstone capital that should be thrown in a jail cell for a substantial amount of time.
Holy shit, this is totally insane.
The worst part is, is that there is a viable market for short term business loans that don’t involve APYs over 300% or loan snarking, or counterfeiting legal documents, or plundering unrelated accounts, or exploiting every legal loophole known to man and lining the pockets of NY “marshals” while you’re at it.
The level of corruption is mind boggling. I’ve often wanted to learn more about the industry and was very interested in the rise of P2P lending, but when you have to compete with scum like this, obviously that makes it near impossible.
Welcome to the inevitable result of financial deregulation. The people who run Yellowstone should never have been allowed near other people's money ever again. There should not be a loophole treating something that's obviously alone as though it weren't. Such high interest rates should be illegal (and are for things legally recognized as loans). Clerks should not be allowed to rubber-stamp an unverified creditor's statement as legal fact, without giving the other party any notification let alone a chance to challenge those so-called facts. Other states, and banks in other states, should not accept such blatantly corrupt behavior.
A whole lot of people - not just the principals but also the legislators, judges, clerks, and bankers who enable them - should spend the rest of their lives in jail for this.
Wow. As a person who pays NYC and NYS taxes, I'm disgusted by this and sort of ashamed.
I will definitely be writing to my state reps to outlaw this practice.
Also, the fact that NYC enriches someone responsible for helping this is shameful and inviting corruption (though it is unsurprising to me that this is the norm here).
Jalopnik recently tackled a similar abuse of the courts in Detroit wrt subprime auto loans:
https://jalopnik.com/how-a-subprime-auto-lender-consumed-det...
Confessions aren’t enforceable in Florida, where the Duncans signed theirs. But New York’s courts are especially friendly to confessions and will accept them from anywhere, so lenders require customers to sign documents allowing them to file there.
Well, that's diabolical. Wow.
Duncan was running a struggling Florida real estate agency with her husband, Doug. She began each day in prayer, a vanilla latte in her hand and her Maltese Shih Tzu, Coco, on her lap, asking God for business to pick up.
This was the first line that made me feel they are just not very good business people. Praying to god for business to pick up instead of starting the day searching for ways to improve the business sounds like the exact sort of thing that "No one plans to fail, they just fail to plan" quote is aimed at. She's just kind of hoping things get better.
The couple had owned their agency, a Re/Max franchise, for three years and now had 50 employees, but they still weren’t turning a profit.
See, I don't get this. How do you have 50 employees and no profit? I don't understand that.
We clearly need better support for small businesses in the US. Small businesses are frequently being run by people who simply cannot compete with corporations and otherwise successfully "swim with the sharks."
We also need better support for micoenterprise -- for businesses with fewer than the ten employees that you need to qualify as a small business. The lack of good support for that sector is part of what is wrong with this country. We haven't created such support and I feel it is destabilizing the country.
Everything is "go big or go home" and that simply isn't healthy. It's fine to have some folks shooting for the stars, but that shouldn't be the only viable option.
My initial reaction to this is one of outrage: "How the hell is this even legal?!" Though the article makes it clear that David Glass has found loopholes in the legal system, and that therefore it is technically legal, it strikes me as utterly contrary to the spirit of the financial regulations he's managed to dodge. I would shed about as many tears for him and similar predators being smote by the courts as I shed for Prenda Law.
There's plenty of "WTF?" to go around in this article, the usurious interest rates, the confession of judgement, and that people are falling for this.
I am sadly not surprised that the banks are offering up their customers funds if said bank has an office in NY, even if not based there. I imagine the banks' legal departments are risk averse and consider that they'd have more to potentially lose fighting such bogus claims than just offering up their customers' money, whether said claims are legitimate or not.
IMO, the New York practice of the marshals is some abuse-ripe legal cruft that needs to go.
I do find myself wondering if remedy for this couldn't come from a federal angle. The US Constitution says that once affairs cross state lines, they become a federal issue, plus there's Wickard vs Filburn that's been used to make anything a federal issue if the fed wants it to be. I wonder if claims of violation of due process or the usurious interest rates could be used to smite Glass and other predators in this financial space.
This is fraud facilitated by NYS. https://en.wikipedia.org/wiki/Fraud Needs a major class action lawsuit and some rocks overturned to find the scum working for the state who are getting rich off this with their mob associates.
Unfortunately, most consumer protections for financing don't apply to businesses. Many of us here on Hacker News have benefited from seed or VC investments without having to put our house on the line, but for the majority of american entrepreneurs access to capital remains the number one issue.
I'm currently working on a startup to solve the access to capital problem for local small businesses (mainvest.com). Open to any feedback or suggestions on how we can tackle this issue. We're currently based in MA, but we're planning on bringing our product to NYS soon. Hopefully they've fixed "confession of judgement" before then.
Boy they sure tried to reel my business in. However, having done some time in the past, I knew a mafia-like scheme when I saw it.
They basically wanted full control of my bank account and my credit card processor, and wanted the loan repaid at $100 a day and at a 50% cost.
The guy calling me got really pissed when I told him I could increase my product prices by 3% and raise the loan amount they offered over the same period as the loan, interest free.
This is a terrible situation. Predatory lenders dealing with owners who are in no position to take on a loan.
I run my company with Quickbooks Online, and they have a "feature" called QuickBooks Capital, where you can secure short term loans at not terrible interest rates (~10%), and they report your payment history to your DUNS number, building your company's credit history.
I take out $20k every 6 months and pay it back weekly over their 6 month payment window and end up paying something small like 4-5% interest on it.
The word disruption is so often misused, abused and overused. That said, if ever there was an industry in need of a swift kick in the stones it's the predatory lenders in this market, as mentioned in the article.
Yes, they are meeting a need, I can't fault them for that. But their heavy-handedness and general over-focus on the their bottom line begs to be taken to the mat and punched in the face.
Certainly there's got to be someone reading this who can make that happen. TIA
This “merchant advance” business, in a (hopefully) less predatory form, is driving revenue at Square and Stripe. I would like to see some comment from someone like Patrick on how they are going to help reform this mess. They’ve got the resources to do it, and if they don’t they will get lumped in as part of the problem when regulation finally arrives.
>New York judges took the view that debtors waived their rights when they signed the papers.
where is the boundary of validity between "sign here to waive your right to defend yourself" and "sign here to waive the right to keep your head (i.e. decapitation)" legally defined?
is it possible to sign and allow a person to decapitate me? if not why not? and why is the right to defend yourself not similarily protected?
it seems at some point both bankers and judges expect civilians to subjugate themselves unconditionally...
> ...and federal regulators banned them for consumer loans in 1985. But New York still allows them for business loans.
perhaps they can soon apply it to consumer loans as well, claiming the consumer failed to register as a business towards the government?
it's like Alice in Wonderland where she or someone else is accused of writing a letter, but after pointing out it's not even the accused's handwriting, this is viewed as cementing the malicious intent when the accused supposedly wrote the letter...
The article contains some personal info[0] on a few of the sociopaths who are running this thing. Seems to me that if the government won't step in to do something, hackers certainly could...
> One had even grabbed his father’s retirement money
How? Aren’t retirement accounts protected by ERISA?
This is absolutely terrifying.
Fwiw, Zach Mider won a Pulitzer in 2015 for his explanatory reporting on US corporate tax evasion.
I’m betting on either RICO, class action, or both against these guys. If they’re so inept to be forging documents their process is surely riddled with worse mistakes. Bravo to Bloomberg for some real journalism.
Class action lawsuit needed.
Confessions of Guilt are an interesting concept and maybe they shouldn't be thrown out by NYS entirely, but signing one when there isn't guilt (especially in advance of the loan) is a horrible practice.
Perhaps Confessions of Guilt should have an expiration date like that it must be filed within 7 days of being signed or it's invalid.
Whats up with the comments blaming the victims here? Duncans’ only fault was being naive. But how many of us commenting here know about “confession of judgement”?
This shouldn’t have happened in the first place, regardless of how naive the borrowers were.
This is absolutely insane.
This article made me so mad.
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Another choice scam that these people do is file claims against people already mired debt on the off chance that they are so deep into it that they have lost track of whom they owe what and no longer have the energy to dispute another claim.
If you are praying for business, you shouldn't run one.
This is the globalists plan.
I did a little digging and found that's it's the (((usual suspects)))
Why and how are Bloomberg articles constantly getting to the top of Hacker News? Was there every any resolution to their murky article about their claim that Supermicro mainboards were apparently getting compromised on the production line?
> The spam fax felt like a gift from God.
Did you ever think you would read such a sentence - and that it would be real?
> The advance turned out to be for $36,762, repaid in $800 daily debits from their bank account starting the day after they got the money. This would continue for about three months, until they’d repaid $59,960, amounting to an annualized interest rate of more than 350 percent. A small price to pay, Doug figured—soon he’d have all the money he needed in cheaper, longer-term debt.
totally speechless. $800 in DAILY payments, at 350% interest, for a TRYOUT loan that he didn't even need, in order to get a bigger loan of $800K. FROM A SPAM FAX. And to top it off - they didn't talk to their lawyer, or (i assume) accountant.
> Jerry Bush, who ran a plumbing business with his father in Roanoke, Va., signed confessions for at least six cash advances from companies including Yellowstone, taking one loan after another as his payments mounted to $18,000 a day.
A day! how could any small business handle that?
This is just heartbreaking. While these were horrible (or desperate) financial decisions - it's not their fault for being victims. This is what laws and regulations are for. We can and will eventually stop this from happening. I think this being a series of stories will help give it the spotlight it needs.
This is without question an absolutely miserable practice, and I predict NYS will take quick action to curtail it - this is the sort of bad PR that very often moves the NYS government into actual positive action. This whole industry seems to have hidden in the shadows, and I hope NYS fixes it.
That being said - one thing stands out, as it often does with this sort of story. There's often a turning point that should make any one of us scratch our heads and learn for the future. This was it for me:
"The Duncans’ ordeal began in November 2017 with an unsolicited fax from a broker promising term loans of as much as $1 million at a cheap rate...The spam fax felt like a gift from God."
That's the moment right there that should scream RED FLAG RED FLAG RED FLAG to everyone. Spam never delivers a gift from the heavens. Never. Never. Never. This is the same sort of thing that 409 scammers bank on -- desperate folks that think they're just the luckiest darn people on earth for happening to get this great deal right at their feet. This is not how the world works.
It goes on...
"Without talking to a lawyer, they did. Why not? Doug thought. They intended to pay the money back on time."
Red Flag #2.
"This would continue for about three months, until they’d repaid $59,960, amounting to an annualized interest rate of more than 350 percent. A small price to pay, Doug figured—soon he’d have all the money he needed in cheaper, longer-term debt."
And again...
I'm not blaming the Duncans here entirely, but this situation was avoidable. I hope everyone here on HN reads this tale and learns from it for your own businesses / life experiences.