BILL NUMBER: S2604

SPONSOR: KRUEGER
 
TITLE OF BILL:

An act to amend section 3218 of the civil practice law and rules, in
relation to certain judgments by confession

 
PURPOSE OR GENERAL IDEA OF BILL:

This bill closes a loophole for certain debts that allow for in-state
merchant cash advance businesses to receive judgments by confession

 
SUMMARY OF SPECIFIC PROVISIONS:

Section 1: Amends the opening paragraph of section 3218 of the civil
practice law to create a new exemption through subdivision (e).

Section 2: Adds subdivision (e) to 3218 to create exemptions from
confession of judgement for amounts due from individuals for personal,
family, consumer, households, investments or non-business purposes or
amounts less than $5 million.
              

 
JUSTIFICATION:

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 commer-
cial transactions, resolve or avoid litigation, support collection of
moneys owed under an equitable distribution plan, or ensure that govern-
ment agencies can recover funds on behalf of victims. When the debtor
does not per form 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.  Prior to 2019, creditors with no nexus to New
York were obtaining judgements against out-of-state debtors in New York
courts because NY had the most permissive confession of judgment stat-
utes in the nation.  Chapter 214 of the laws of 2019 closed the out-of-
state pipeline of cases, but left a loophole that allowed New York busi-
nesses open to such judgements by New York courts. This bill closes that
loophole through codifying a federal rule to ban the use of confessions
of judgments on amounts due from individuals for family, household,
consumer, investment, or other non-business uses. The bill also bars
confessions of judgements on any debt less than $5 million.  Confessions
of judgement are a useful tool for some consumer credit transactions,
but should be restricted for small dollar debt incurred by small busi-
nesses.

 
PRIOR LEGISLATIVE HISTORY:

2023-2024: New bill

 
FISCAL IMPLICATIONS:

No Cost to the State

 
EFFECTIVE DATE:
This act shall take effect immediately