1. Business

Tampa couple lost big by signing a 'confession of judgment'. They aren't alone.

A screenshot of the Bloomberg Businessweek cover story.
Published Dec. 7, 2018

Dating to the Middle Ages, confessions of judgment helped lenders collect debts without going to trial. The arcane legal document proved so controversial that many states banned them decades ago.

But they are making a comeback. Some crafty entrepreneurs recently dusted them off and are reaping big rewards.

Small business owners, in particular, be aware. Signing a confession of judgment can cost you nearly everything, a reality showcased in a fascinating Bloomberg Businessweek cover story.

The nightmare starts with a high-interest cash advance and spirals down from there.

Businessweek put it this way:

"Rather than breaking legs, these lenders have co-opted New York's court system and turned it into a high-speed debt-collection machine. … Armed with a confession, a lender can, without proof, accuse the borrowers of not paying and legally seize their assets before they know what happened."

MORE BUSINESS: Is there a Christmas tree shortage?

New York is the epicenter, but that doesn't make us immune here in Florida. Our state won't enforce a confession of judgment, but New York will "accept them from anywhere," Businessweek warned.

In fact, the article begins with Janelle and Doug Duncan, who ran a real estate agency in the Tampa Bay area. They borrowed $36,762 from ABC Merchant Solutions, one of dozens of companies affiliated with Yellowstone Capital, co-founded by David Glass. Once busted by the FBI for insider trading, Glass was the inspiration for the 2000 stock-fixing movie Boiler Room, staring Giovanni Ribisi and Ben Affleck.

Before lending the money, ABC Merchant Solutions and the other companies have clients like the Duncans sign confessions of judgment enforceable in New York. They call the loans cash advances, which often don't draw as much scrutiny from regulators as traditional loans. They also allow the lenders to charge much higher annual interest rates, 400 percent in some cases.

If the clients fail to make payments or otherwise breach the terms of the contract, the documents allow the companies to go to a clerk of court in New York to freeze bank accounts and seize cash. They don't have to go before a judge, nor do the small business owners get a chance to defend themselves in court before losing access to their money.

The Duncans were paying back the loan in $800 increments automatically pulled from their bank account each day. They had not missed a payment and have documents to back it up, according to the Businessweek article.

Still, ABC Merchant Solutions said the couple missed one $800 payment. The lender used the confession of judgment to freeze the Duncans' bank accounts and eventually took $52,886.93, far more than the original amount, especially after factoring in the thousands of dollars the Duncans had already made in daily payments.

STOCK DROP: Tech giants lose nearly $1 trillion. What's going on?

ABC froze the accounts just three days after the lender alleged that the Duncans had missed a payment, said Hillsborough attorney Jeffrey Dowd, who the couple met with after they discovered they couldn't access their money.

"The Duncans didn't miss a payment, but these lenders move at even the slightest inclination that someone isn't going to pay the money back," Dowd told me. "There are no checks or balances and very few ways for business owners to push back."

The swift process, combined with added fees, allows the lenders in some cases to make more money — and faster — than if the borrower had paid it all back, even at a 400 percent annual interest rate. Businessweek referred to it as a "profit engine."

"By seizing (the Duncans') bank accounts, Yellowstone had managed to collect its money ahead of schedule and tack on $9,990 in extra fees," Businessweek reported. "In about three months, the company and its affiliates almost doubled their money."

The article details how New York's court system enables the process: Court clerks rubber stamp the confessions. When business owners appeal, judges tend to rule against them, saying they waived their rights by signing the document. The state marshal gets a 5 percent fee for its collection services, a job that netted the top collector $1.7 million last year, seven times more than the New York City mayor's salary.

"New York's legal system has a flaw in it that basically allows these lenders to prey on people who are in a desperate situation," Dowd said. "They know that once they freeze the accounts, the small business owners won't have any money left to put up a legal fight."

Many banks go along, too, routinely freezing their clients' bank accounts, sometimes without telling them why. That money is often the business' lifeline. Without access to it, they can't survive. The Duncan's, for instance, had to close their real estate business.

While the process is legal, small business owners have complained that the lenders have forged signatures, altered documents and made up stories about clients defaulting on payments, all in an effort to make more money.

This is no one off, either. Businessweek found more than 25,000 judgments filed in New York since 2012 — most in the last two years — worth an estimated $1.5 billion.

Dowd's advice to any small business owner thinking of signing a confession of judgment:

"Don't do it!"

Contact Graham Brink at Follow @GrahamBrink.


  1. A citrus grove in eastern Hillsborough County. [Times (2017)]
    The U.S. Dept. of Agriculture is predicting a 3.3 percent increase for the struggling industry.
  2. Gas prices may go up as much as 5 cents this week, AAA, The Auto Club Group, said. Pictured is a man filling up at a gas station in St. Petersburg in 2017. [DIRK SHADD   |   Times  (2017)] SHADD, DIRK  |  Tampa Bay Times
    Gas dropped 10 cents on average in Tampa Bay last week and 6 cents on average in Florida.
  3. Artist Danny Acosta completes re-lettering  of the Southernmost Point in the Continental U.S.A. marker in Key West after much of the paint was stripped off in Hurricane Irma in 2017. [Florida Keys News Bureau via the Associated Press]
    Less than 10 percent of U.S. counties are "vacation home'' counties.
  4. The Maple Street Biscuit Company opened in April on the 600 block of Central Avenue. [SCOTT KEELER   |   Times]
    The popular Jacksonville biscuit shop has recently opened a handful of Tampa Bay locations.
    A frustrated business card user learns that his on-time payments don’t boost his personal credit score.
  6. Regina Temple is the new president and CEO at Regional Medical Center Bayonet Point. HCA West Florida
    Read this and more Pasco County business news.
  7. The City Council has called for consultants to design an outdoor concert pavilion with a fixed covering over 4,000 seats in the middle of its proposed overhaul of the downtown waterfront. That decision is causing some friction in the city as officials prepare to present preliminary design drawings to the public. City of Clearwater
    Some in the city are divided over Clearwater’s $64.5 million plan.
  8. Tampa Bay workers are more likely than employees in other metros to quit because of a boss they don’t like, according to a recent survey. Pictured are job seekers at a Tampa job fair in June. [OCTAVIO JONES   |   Times] JONES  |  Tampa Bay Times
    Tampa Bay and Miami tied for the percentage of employees who quit because of a boss.
  9. Recent sunny day flooding in Shore Acres, a St. Petersburg neighborhood vulnerable to rising sea levels. [Times] Susan Taylor Martin
    The organizations will explore the impact of climate change on Florida.
  10. The University of Florida's Institute of Food and Agricultural Sciences - Pasco Extension opened an incubator kitchen on Sept. 23. It's  at 15029 14th Street in Dade City. The goal of the kitchen is to create educational opportunities for food entrepreneurs and help them to start new businesses. Whitney Eleamor (center left) developed the idea for the kitchen. PAIGE FRY  |  Paige Fry
    The ribbon-cutting ceremony was held last week for the Pasco County Extension Service community kitchen.