
Predatory lenders have co-opted New York’s court system - petethomas
https://www.bloomberg.com/graphics/2018-confessions-of-judgment-new-york-court-clerks/
======
dpwm
This is part 3 in a series of articles. I've just tracked down parts one [0]
and two, [1] posted recently. [0] has quite a few comments on it.

[0]
[https://news.ycombinator.com/item?id=18495812](https://news.ycombinator.com/item?id=18495812)

[1]
[https://news.ycombinator.com/item?id=18542869](https://news.ycombinator.com/item?id=18542869)

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MarkusAllen
Everyone... I mean EVERYONE needs to master the laws of debt collection. Even
if we think we are "responsible." Because all of us are a "situation" away
from losing it all.

Here in the USA, there is a "statute of limitations on debt". If we fall onto
bad times, the laws protect us from aggressive debt collectors. We simply stop
paying all debts... and the law cleans our slate fresh after x amount of years
(depending on each state). No bankruptcy needed.

~~~
mrstatute
It's much more complicated than that. The law doesn't wipe the slate clean.
Rather, it gives the debtor an affirmative defense against a lawsuit after X
years. It does not stop a debt collector from trying to collect on otherwise
uncollectible debt (phone calls, letters, calls to friends, family, and
employers if the debtor doesn't respond). Additionally, debts barred by the
statute of limitations can sometimes still crop up as "zombie debt" years or
decades later. Collectors can (and will) put a new records on a person's
credit report, preventing most debtors from rebuilding their credit.

When a debtor stops paying debts entirely, it can start a whirlwind of
problems. They can be barred from finding housing, certain types of
employment, their actual current jobs (certain professional licensing require
financial responsibility). Additionally, most debts end up in the hands of
collection attorneys (CA) who will sue en masse to obtain judgments. This
effectively stops the statute of limitations and gives the CA 10 years, 20
years, or a lifetime to collect the debt. In these cases, a well-timed
bankruptcy is (and should be) an option for people. In some cases of debt --
student loans for example -- the debt is presumed non-dischargeable and can
create a lifetime of hardship for the debtor.

~~~
danesparza
Also: Tacking on fees allows a debt collector to effectively 're-up' the debt,
which resets the clock on the statute of limitations.

~~~
wahern
Once upon a time (40+ years ago?) accepting partial payment for a debt using
an instrument that declared something to the effect of, "for the satisfaction
of all debt", was enforceable. This became a problem when automated payment
processing systems became prevalent. Savvy debtors--presumably mostly lawyers
--could write a check for $10 that extinguished a $10,000 medical bill once
cashed. Needless to say, the law was quickly changed before it became too
prevalent--much more quickly than laws designed to protect consumers.

Unlike the loophole regarding debt acknowledgment you mention, this loophole
was an artifact of mercantile law. Terms on negotiable instruments are
typically strictly enforced as compared to regular contracts, to ensure
maximum efficiency of payment systems. (Or at least the rules for what's
enforceable are very brightline, and aren't particularly concerned with
fairness. Magical phrases are still very much important.)

~~~
cwkoss
Interesting article I found on this subject: [https://tddlaw.com/accord-and-
satisfaction-effectiveness-of-...](https://tddlaw.com/accord-and-satisfaction-
effectiveness-of-writing-payment-in-full-on-a-check/)

"The takeaway from these two cases is that accord and satisfaction can only
settle a disputed debt when both parties have knowledge of the outstanding
issues to which the debt pertains, and the party negotiating the check has
reasonable notice that by depositing the check the dispute is completely
settled for the amount of the check."

I wonder if you could put a 'warning sleeve' or something around a check that
is sent to someone who may process it automatically.

------
amingilani
Wait ELI5: How can you presign a confession to something before you commit it?
It's like signing a confession to murder before someone dies :/

How is this admissible?

I'm not American.

~~~
turc1656
This is kind of the equivalent of waiving your rights. For example, you've
probably heard of contracts where you sign away your right to sue someone in
civil court and agree to go to arbitration instead. That's signing away your
rights. Similar story here. You are agreeing in advance, to waive your right
to defend yourself in court. Since these are civil cases, the judgment is
always in favor of the company filing the suit because you basically agreed to
let them win if they ever decided to make such a filing. In civil cases, there
isn't the same burden of proof as a criminal trial. It's more of a "which side
does the scale tip to with the information at hand" thing. And since the
defendant agreed to not defend themselves and conceded guilt in advance, the
court always sides with the accuser.

Didn't read this particular article but read a different one earlier this week
on this topic so not sure if it's covered here but it's a really old law/tool
and has been outlawed almost everywhere. I believe it's outlawed in the entire
country for _personal_ dealings because of laws regarding due process and
consumer protection. However, it is still allowed in a few states for
_business_ dealings which is why these loan places use this legal process
exclusively for business loans. They don't have the same level of protection
that an individual has, even though a lot of these businesses are run by 2-3
people who put up their own assets against the loan.

~~~
jandrese
That seems to be putting a lot of faith in the landlord not to screw you over.
It's basically Russian Roulette.

But if it's a seller's market what are you going to do? Live under a bridge?
Live in the sewer? Live in New Jersey?

~~~
turc1656
Totally agree. You have no control once you sign that paper if the other side
will be honest or honorable in any way. And since there is no incentive for
them to not screw you, and actual incentive to screw you (since they get a
higher return over a shorter time) that should be the expectation.

I think the real problem here is that people either don't read or don't
understand what they sign. I mean you would think that a document labeled
_confession_ of judgment might alarm people, but apparently not. I recently
moved and during the mortgage process for our new place I raised a number of
issues regarding the accuracy of the information that was filled in. Nothing
fraudulent or terrible on their part - just errors. When I raised these issues
(including a math error on the loan disclosure and the omission of a loan
credit I was promised) so they could correct and reissue _before_ I signed
them, the loan officer said, "You really read through these documents, huh?"
and I was like "Well yeah. Who the hell wouldn't read through critical
documents like this that put them on the hook for hundreds of thousands of
dollars?" and she responded, "Basically everyone. They all pretty much just
sign without reading. That's why we had to have that recorded phone call for
documentation on our side to prove you actually understood at least the basics
of what you signing." I mean I know almost no one reads EULAs, but
_mortgages_?! That's just depressing.

~~~
marcosdumay
> I think the real problem here is that people either don't read or don't
> understand what they sign.

If you are looking for real problems, that's way on the back of the line. The
top one I can find is, how can somebody simply sign away their right to access
the Judiciary system? How can those huge contracts with incomprehensible be
binding for normal people? How come people have no alternative to signing
them?

~~~
turc1656
We're not talking about normal people - we're talking about businesses. It's
been outlawed for regular people across the board. But because they can still
apply to _businesses_ in a few states, we end up with this. Businesses are
supposed to be a bit more prepared and knowledgeable when it comes to legal
matters so it's expected that the playing field is a bit more fair and they
will understand what they are signing and be able to negotiable a contract
better than a regular person who can't comprehend all the legalese.

And technically, they do have an alternative - refuse to sign them and don't
do business with them. No one is saying these businesses are required to take
these loans on these terms. The owners simply don't understand what they are
signing. Anyone who actually is a good risk for a loan and refuses to sign
these documents shouldn't really have a problem getting someone to agree to
omit that as part of the paperwork.

I really think this is at least partially a matter of due diligence on the
part of the business seeking the loan. If I ran a small company and found out
that an officer/exec authorized to do business under the company name took out
a loan and signed one of these confessions, there's a pretty decent chance
they would be fired regardless of any pending legal action. If legal action
was indeed filed, they would definitely be fired for a lack of due diligence
on the documents that resulted in signing away company rights.

------
hedora
The US seriously needs to strike the work “criminal” from the 6th amendment:

“In all criminal prosecutions, the accused shall enjoy the right to a speedy
and public trial, by an impartial jury of the State and district wherein the
crime shall have been committed, which district shall have been previously
ascertained by law, and to be informed of the nature and cause of the
accusation; to be confronted with the witnesses against him; to have
compulsory process for obtaining witnesses in his favor, and to have the
Assistance of Counsel for his defence.”

~~~
wahern
You basically have most of the same rights in civil courts, and where they
vary they mostly vary for good reasons.

The real issue is that contract law permits waiving many of these long before
any dispute arises. A body of law arose to limit the detrimental effects
(unconscionability, etc), but Federal law (statutory and case law) have
increasingly made these state law-based safeguards ineffective.[1] Federal law
lacks many of these safeguards, and instead principally relies (if at all) on
regulatory agencies to police abusive behavior. But that doesn't do much to
remedy injustices in the context of individual disputes.

We should be hesitant to enshrine things in the Federal Constitution. Often
times doing so results not only in fixing a limit on how narrow your rights,
but also as a practical matter how expansive they can be, depending on the
political bent of the Supreme Court.

[1] And then, of course, there's the glaring loophole of New York's confession
of judgment. But that issue also involves some complex conflict of law issues.
It's possible states could unilaterally shield their residents from New York's
policies, but I don't know nearly enough to be able to say with any confidence
what the best strategies might be. Also note that the same issues can exist
across international jurisdictions. For now that's mostly a concern of the
very rich and multinationals, but once upon a time these cross-state conflicts
were also only the concern of the rich and large businesses.

------
thomasfedb
What I find most bizarre is that the court has jurisdiction when both the
lender and borrower are foreign to it. How's that work?

~~~
nbp234
Lots of contracts specify a jurisdiction to resolve any disputes over the
agreement. That's probably what's happening here.

~~~
ratmice
I believe the reason they gave from the previous article was the bank has a
branch in new york.

~~~
MattGrommes
Also the lenders know that the banks rarely examine all the requests they
receive. The banks tend to just follow the directive so they don't have to
spend money/time on looking into them.

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talltimtom
> They get around usury laws by saying they aren’t making loans but advancing
> cash in exchange for a share of future revenue.

Didn’t stripe also resently start doing this? Does anyone know if they gearing
up a business as a predatory lender as well?

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dsfyu404ed
Companies that do business like this can only ruin so many people's lives
before someone uses their last remaining money to buy a High Point and a bus
ticket and makes their business practices the subject of national headlines.

Might not happen today. Might not happen this decade but eventually someone
will snap. It might not come to that. The legislators might catch wind of it
and change the law in a different way but the risk is always there.

~~~
JasonFruit
It may be wrong, but it does happen, and the desperation of being
underemployed and drowning in debt is powerful.

------
emmanueloga_
In the subject of the workings of the US judicial system, season 3 of Serial
is all about courthouse stories. I really enjoyed the episodes so far.

[https://serialpodcast.org/](https://serialpodcast.org/)

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dba7dba
I am genuinely surprised no public announcement of any kind has been made by
any politician of NY yet about this. Maybe some have and I just don't know?

Or could it be that all NY politicians have been paid off by these
entrepreneurs?

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lolc
> he ruled, "[...] a criminally usurious transaction"

The only proper way to judge the actions of these crooks.

