New York's Confession of Judgment Ban, Explained

What a Confession of Judgment Is, Briefly

A confession of judgment is a legal document a merchant signs, often as part of an MCA agreement, that allows the funder to obtain an immediate court judgment against the merchant on default, without a trial. It has been a standard tool in MCA contracts for enforcing default, and it has also been the subject of significant regulatory and legislative pushback because of how quickly and one-sidedly it can move against a merchant who defaults.

What New York Actually Banned in 2019

New York amended CPLR Section 3218 through Senate Bill 6395, banning the use of confessions of judgment against out-of-state residents, effective August 30, 2019. COJs executed after that date against a merchant who does not reside in New York are unenforceable in New York courts. That is a specific, residency-based restriction, not a blanket statewide ban on the instrument itself.

The Caveat Most Summaries Get Wrong

Search coverage of this law and it is common to see it flattened into "New York banned confessions of judgment," full stop. That summary is inaccurate in a way that matters to anyone actually operating in this space. The ban specifically covers non-resident merchants. It does not cover merchants domiciled in New York, meaning a COJ against a New York-resident merchant remains a different legal question, not automatically banned the way an out-of-state COJ now is. Getting this distinction right is the difference between an accurate compliance summary and one that will mislead a reader relying on it.

COJs Are Still Permitted in Several Other States

New York's residency-based ban did not create a national prohibition. COJs remain permitted in commercial transactions in several other states this research confirmed, including Pennsylvania, Ohio, Illinois, Virginia, and New Jersey. A funder or broker whose deal flow runs through those states is operating under a different legal framework than New York's post-2019 rule, and "COJs are banned" is simply not an accurate description of the law in those states.

Why This Matters for How You Talk About the Law

Precision matters here for two reasons. First, if you are structuring or discussing MCA agreements involving New York, the residency of the merchant, not just the state where the funder operates, is the fact that determines whether the 2019 amendment even applies. Second, if you are fielding a question from a merchant or a sales prospect about "isn't COJ banned now," the accurate answer is more specific than a flat yes, and giving the flat answer risks either overstating protection a New York-resident merchant does not actually have, or understating the real restriction that applies to an out-of-state merchant.

What to Verify Before Relying on This

1. Confirm the merchant's state of residence, not just the state where the deal is being negotiated or the funder is based.
2. Confirm whether the specific transaction involves a New York-executed COJ or one executed under another state's law.
3. Do not describe New York's law as a blanket COJ ban in any marketing, sales, or compliance material. Describe it as a ban against out-of-state residents specifically.
4. Check the current legal status in whichever other state a COJ might be executed under, since state law in this area continues to evolve.

Sources

The external data in this guide draws on the sources below. Figures described in the text as estimates or industry triangulations are directional and are not attributed to a single dataset.

• Moritt Hock & Hamroff, New York's new confession of judgment law and its residency-requirement consequences
• LendSaaS, glossary of MCA terms (confession of judgment definition)

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