BILL NUMBER: S6439

SPONSOR: BRISPORT
 
TITLE OF BILL:

An act to repeal section 3218 of the civil practice law and rules relat-
ing to judgments by confession

 
SUMMARY OF PROVISIONS:

Section one of this bill repeals section 3218 of the civil practice law
and rules.

Section two provides that this act shall take effect immediately.

 
JUSTIFICATION:

Creditors have long used the "confession of judgment" legal device to
prey upon unsuspecting debtors in New York, demanding that less sophis-
ticated persons or entities immediately relinquish important legal
rights when they sign a promissory note or contract. Following the lead
of other states that have precluded the use of such legal devices, and
              

following upon some limited reforms that New York enacted in prior
years, this legislation will end the use of the "confession of judgment"
legal device once and for all.

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. When the debtor does not perform or pay
according to the agreement, a so-called "confession" may then be filed
as a judgment with the county clerk without commencing a legal proceed-
ing against the debtor, and even if the debtor would otherwise have
legitimate defenses that it could have asserted against a creditor or
debt collector. In other words, a "confession of judgment" is a device
that is used by creditors and debt collectors to immediately demand that
a person waive important legal rights.

The use of "confessions of judgment" has very real and very serious
consequences. In September 2019, the House Financial Services Committee
convened for a hearing on predatory debt collection, and testimony from
the New York Taxi Workers Alliance indicated that predatory lenders had
been aggressively utilizing "confessions of judgment" to "intimidate
borrowers into making large sum payments towards outstanding loan
balances or rush into refinancing agreements with interest, even inter-
est-only, provisions." According to testimony from a representative of
the New York Taxi Workers Alliance, "(c)onfessions of judgment have
basically meant that when (the taxi medallion market) started to fall,
drivers were told that they had to pay up the total sum of what was owed
on that debt, had to produce $350,000, $400,000 overnight." This is just
one of the devices that has been used to drive New York taxi drivers
towards an epidemic of financial ruin and suicide.

Representatives from the Federal Trade Commission (FTC) have also criti-
cized the use of "confessions of judgment," and suggested that a ban on
the practice would be appropriate. FTC Commissioner Rohit Chopra testi-
fied that the FTC "should look to restrict terms like confessions of
judgment that the FTC banned in consumer loans ages ago." Although the
federal government has not yet acted to prohibit this practice nation-
wide, New York State can join other states in officially prohibiting the
practice.

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

None.

 
EFFECTIVE DATE:
This act shall take effect immediately.