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House Committee Passes Velazquez Measure to End Predatory "Confessions of Judgement" Small Business Practice

April 21, 2021
Press Release

Washington, DC –Today, the House Financial Services Committee passed a key measure authored by Rep. Nydia M. Velázquez (D-NY) to restrict the use of predatory contract clauses called “confessions of judgment,” which are often used in small business loans. 
A confession of judgment is a contract between a lender and a borrower in which the lender can easily seize a borrower’s assets without a lawsuit. Velazquez’s provision, included in a bill offered by Chairwoman Maxine Waters (D-CA), would extend protections in current law that apply to consumer loans, prohibiting the use of confessions of judgment, to commercial loans. 
"Unfortunately, some lenders and debt collection companies are seeking to cash-in on the pandemic by making these predatory loans, whether to a taxi cab driver in New York City pursuing the American dream or a small business owner trying to make payroll," said Velázquez. "By signing a confession of judgement, borrowers essentially waive their legal rights regarding any legal dispute that might arise. That is why it is so important that the language included in H.R. 2547 that passed in Committee today, will finally ban these predatory collection practices. By ending confessions of judgement in commercial lending, we can stop some of the abuses that are crippling honest and hardworking small business owners."

"The passage of a national ban on Confession of Judgment as part of the Committee vote on H. R. 2547, is a tremendous, life-saving protection for thousands of medallion owner-drivers steeped in insurmountable debt and unsustainable high mortgages," said Bhairavi Desai, Executive Director, New York Taxi Workers Alliance. "Once owner-drivers are no longer able to keep up with payments and when a Confession of Judgment has been signed, all the bank needs to do is take that piece of paper and get liens on homes and bank accounts.  Everything an owner-driver has worked for their whole life gets wiped out.  Confessions of Judgment are financially devastating. They are also an affront to any sense of fairness and due process. Borrowers like drivers with the least bargaining power, many immigrants and low-wage, are left defenseless when the bank goes to war against them over a debt. For loans that have "balloons" for example, when after a short period of time, usually three or five years, the loan is up for renegotiation or the borrower is in line to pay off the total balance, Confessions of Judgment are used to scare the borrower into making refinancing deals against their own interest. We thank Congresswoman Velázquez for her unwavering leadership on this issue. When this issue was first exposed, Congresswoman Velázquez acted immediately to protect vulnerable borrowers facing financial ruin and the chokehold of Confessions of Judgment. We thank Chairwoman Maxine Waters for standing up for people like owner-drivers whose lives will be subject to less trauma and insecurity when the bill is signed into law. Even during COVID, we had members whose houses and accounts were frozen with the use of Confession of Judgment. We are committed to working with Congresswoman Velázquez to see this victory all the way." 

Velázquez's measure has also been endorsed by the following organizations: Small Business Majority; Responsible Business Lending Coalition; Americans for Financial Reform; Consumer Federation of America; National Consumer Law Center.