Senate Bill S6395

                                
 
BILL NUMBER: S6395

SPONSOR: HOYLMAN
 
TITLE OF BILL:  An act to amend the civil practice law and rules, in
relation to judgment by confession

This proposal is one in a series of measures being introduced at the
request of the Chief Administrative Judge upon the recommendation of his
Advisory Committee on Civil Practice.

This measure would amend section 3218 of the Civil Practice Law and
Rules to remedy abuses in the use of confessions of judgment by credi-
tors against out-of-state debtors. This measure is in response to recent
press reports regarding creditors that execute confessions of judgment
in New York State even though the associated agreement or debtor have no
nexus to the State.*

Under the current statute, a confession of judgment is a written and
signed statement, in the form of an affidavit, in which a debtor admits
liability and agrees to pay the sum confessed as owed to the creditor
pursuant to an agreement. A confession of judgment is a legitimate tool
that may facilitate commercial transactions, resolve or avoid liti-
gation, support collection of moneys owed under an equitable distrib-
              

ution plan, or ensure that government agencies can recover funds on
behalf of victims. When the debtor does not perform or pay according to
the agreement, a confession may be filed as a judgment with the county
clerk, even in the absence of a pending court action.**

But, in recent years, creditors, often from out-of-state, have entered
confessions of judgment in various New York counties against debtors who
themselves are out-of-state small business owners with no connection to
New York. This practice has resulted in some unscrupulous creditors
using New York law and procedure to freeze and then seize debtors'
assets based on a judgment entered in a venue far from where the agree-
ment was executed and the parties reside, making it difficult for a
debtor to contest abusive conduct by a creditor.

This measure seeks to correct such abuse without frustrating legitimate
use of confessions of judgment within the State. It limits the venue for
filing a confession of judgment to in-state debtors, based on where the
debtor resided at the time the affidavit was executed or, if the debtor
moves, where he or she resides at the time of filing the judgment. This
approach is intended to prevent creditors from abusing confessions of
judgment by using New York courts as a venue to profit from debtors with
no New York connection.

Under this measure, a non-natural person, such as a corporation, would
be deemed to reside in the county where it has a principal place of
business.

This measure would provide an exemption for government agencies engaged
in enforcing civil or criminal law against a person or non-natural
person, including non-residents. Government agencies often use
confessions of judgment to ensure that they can recover assets to pay,
for example, restitution to victims. Therefore, the proposal would
permit government law enforcement agencies to enter such judgments in
any county within the State.


This measure, which would have no fiscal impact, would take effect imme-
diately and apply to judgments by confession filed on or after the
effective date.

 
LEGISLATIVE HISTORY:

None. New Proposal

* Zachary R. Mider and Zeke Faux, 'Sign Here to Lose Everything', Bloom-
berg Businessweek (online, November 20, 2018), https://www.bloom
berg.comigraphics/2018-confessions-ofjudgment/?smd=confessions-of-judg
ment.

** In the mid-1980s, the Federal Trade Commission (FTC) banned
confessions of judgment in consumer transactions and bank transactions:
" 
It is an unfair act or practice within the meaning of Section 5 of
 
THE FTC Act for a lender or retail installment seller directly or
indirectly to take or receive from a consumer an obligation that: 1)
Constitutes or contains a cognovit or confession of judgment ( for
purposes other than executory process in the State of Louisiana),
warrant of attorney, or other waiver of the right to notice and the
opportunity to be heard in the event of suit or process there on." (16
CFR 444.2.)