MCA Confessions of Judgment in Utah, Michigan and Ohio: Why New York’s Restrictions Are Not the Whole Answer

Confessions of Judgement are a problem and it’s good this is changing. But there are still problems with the fix. New York’s 2019 change only stops New York courts from entering confessions of judgment against businesses outside New York; it does not stop a funder filing in another state. Utah, Michigan and Ohio each have their own little way of protecting borrowers from predatory lending. But each of those states’ protections only goes so far. Most of the protections are only for the benefit of consumers. A business that signed a confession of judgment may still have legal defenses in the state in which the confession of judgment was filed.

Confessions of judgment are agreements in which a borrower agrees to pay a certain amount and waives their legal rights to defend themself from collection action. New York’s change to New York State’s laws came in August 2019. That change says that a New York court can’t enter a confession of judgment against out-of-state residents, no matter what kind of confession of judgment it is. The debtor has to sign an affidavit naming the New York county they live in. The new law doesn’t necessarily prevent New York courts from entering a judgment against out-of-state residents.

Utah’s Legislature passed a law that voids confessions of judgment in employment contracts and consumer credit contracts for people who signed the contract after May 14, 2019. The Utah Legislature clarified the wording of its law again in 2020. Everyone else, including businesses, still can confess judgment in Utah.

In Utah, the funder files a verified statement signed by the debtor saying there is a valid claim and the amount; the clerk signs a judgment for that amount. Since 2023, if the funder is a provider of cash advances to a Utah business they usually must register with the state.

Any circuit court in Michigan can enter a confession of judgment. But only if the confession is in a separate document from the contract, and the lender shows the document to the officer who signs the judgment, and the clerk files the document. This is a strange law and not one many people know about. A Michigan appeals court once considered whether to uphold a confession of judgment when it had been printed inside the same document with other contract terms. The Michigan law was intended to protect the unwary, according to a dissenting Michigan appeals court judge in 2001.

A confession of judgment in a consumer loan or consumer transaction entered in Ohio is invalid. The law does not apply to business transactions or to transactions before January 1, 1974. An Ohio consumer loan is a loan that is mainly for personal, family, educational, or household purposes. A cash advance to a company usually isn’t for those things. In the 1970s the U.S. Supreme Court (D.H. Overmyer Co. v. Frick Co., 405 U.S. 174 (1972)) held the Constitution does not automatically prevent confessions of judgment, but the court said this could be different if a contract is adhesion and there is a big difference in bargaining power.

Under Ohio law, the warning that you give up your right to notice and a day in court has to be on the document right above or below where you sign, and it has to be the most noticeable thing on the page, or the warrant is invalid. In Ohio, if your funder confesses judgment against you, it has to do it in the municipal court or county where you live or signed the agreement. Right afterward the court has to give you notice, either in person or by certified mail. If you are an Ohio defendant against whom a court issued a cognovit judgment, you only need to claim your defense is valid in a timely filed response for an Ohio court to vacate the judgment. Filing in the wrong county counts as a defense.

What you should do if you signed a confession of judgment depends on where you live. Start with pulling out a copy of your document and looking for the confession of judgment. Is it a separate paper like Michigan requires? Is the warning above or below your signature like Ohio requires? Finally, check the county where the funder filed their confession. Then raise it to the court if you get a notice that there is a judgment against you, and fight it right away.

It can be intimidating to find out a document you signed has wording in it confessing judgment. However, this type of document is a risk, not necessarily a clear danger. You may have a defense to your funder’s claim, and the circumstances may be complex enough you should talk to a lawyer.