A confession of judgment (COJ) is a contract clause that pre-authorizes a creditor to obtain a court judgment against the borrower without notice or a hearing if the borrower defaults. In merchant cash advance contracts, COJs were widely used through the 2010s as an aggressive enforcement tool. After investigative reporting in 2018-2019 exposed widespread abuse, New York banned COJs from MCA contracts in 2019, and several states have followed.
As of 2026, reputable MCA funders no longer use COJs. They still appear in some agreements from less-regulated funders. Knowing what to look for — and why to walk away if you see one — is part of due diligence on any MCA offer.
How a COJ Worked in MCA Contracts
A standard COJ clause did three things at signing:
- Authorized an attorney to confess judgment on behalf of the merchant in any court the funder chose, often in a state where the merchant had no operations or counsel.
- Pre-stipulated the amount the merchant would owe — typically the full advance plus all fees and accelerated payback.
- Waived the merchant's right to notice or a defense before judgment was entered.
In practice, a merchant who fell behind on daily ACH payments would discover that a judgment had already been entered against them — sometimes in a New York court, regardless of where the merchant operated. The judgment could then be used to freeze bank accounts, levy assets, and pressure the merchant into immediate repayment.
Why COJs Became a Problem
Three patterns drove the regulatory backlash:
1. Forum manipulation. Merchants in California, Texas, and other states would have judgments entered against them in New York courts because the COJ designated NY as the venue. Travel to defend was prohibitively expensive; many merchants didn't even learn of the judgment until their bank accounts were frozen.
2. Use without true default. Some funders entered COJs after a single missed daily ACH or for technical defaults that didn't reflect inability to pay — using the COJ as leverage rather than a last resort.
3. Inflated judgment amounts. Some COJs included accelerated payback plus default-interest penalties plus "attorney fees" that bore no relationship to actual costs, producing judgment amounts much larger than the actual outstanding balance.
Bloomberg's 2018 investigative series ("Sign Here to Lose Everything") documented these patterns and triggered both regulatory action and industry self-regulation.
The 2019 New York Ban
In August 2019, New York amended its civil practice law to prohibit out-of-state plaintiffs from filing COJs against out-of-state defendants in NY courts. Since most MCA funders had used NY as the venue for COJ enforcement, this effectively eliminated COJs as a usable tool against non-NY merchants. New York has since further tightened the rules through the FAIR Act amendments (2023+).
Other states have followed in various forms — some banning COJs in MCAs explicitly, others restricting venue rules, others tightening notice requirements before judgment can be entered.
Where COJs Still Appear
In 2026, COJs in MCA contracts are rare but not extinct. They may still appear in:
- Contracts from smaller, less-regulated MCA funders, often offered to merchants in states without strong disclosure laws
- Contracts that designate venues outside NY (e.g., Delaware) for enforcement
- Contracts that use restructured language to achieve similar effect — pre-authorized waivers, pre-stipulated default amounts, or arbitration clauses with severely limited defendant rights
If you see a clause titled "Confession of Judgment," "Cognovit Note," "Affidavit of Confession," or "Pre-Authorized Judgment" — or any clause that pre-stipulates an amount you'll owe upon default and waives your right to defend — that's a COJ or COJ-equivalent.
What to Do If You See a COJ in an Offer
- Request that the COJ be removed. Reputable funders will agree without pushback. If the funder refuses, that's significant signal about their enforcement posture.
- Ask the funder to explain it in plain English. If they can't or won't, walk away.
- Consult counsel before signing. Even a few hundred dollars in legal review is worthwhile to avoid a six-figure default exposure.
- Compare against other funders. Most reputable MCAs do not include COJs. If a funder you're considering insists, that's reason to take other offers more seriously.
Westline's Position
Westline does not use confessions of judgment, cognovit notes, pre-authorized judgments, or any COJ-equivalent clauses in any state, regardless of advance amount. Our enforcement provisions in the case of default follow standard commercial collection law: notice, opportunity to cure, and (only if necessary) civil action with full defendant rights.
If you'd like to see our standard advance agreement before applying, we'll send the document for your review. If you have an offer from another funder that includes a COJ and you want a second opinion, send it over — we'll review it and tell you honestly what you're agreeing to.
Sources & References
- Bank denial and small business credit access figures cited in this piece are derived from the Federal Reserve Small Business Credit Survey. Approval rates for small business credit applications at large banks have ranged from approximately 13%-31% across recent survey years, depending on bank category and reporting period.
- Small business finance landscape and lending program data: SBA Office of Advocacy.
- Merchant cash advance industry standards and disclosure practices: Small Business Finance Association (SBFA).
- Commercial financing disclosure regulations referenced (NY FAIR Act, CA SB 1235/666/362, VA, UT) are summarized from the published statutes; consult counsel for specific compliance application.