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Erie County clerk revamps policies to block predatory lending practices

An unwanted national spotlight was shined on the Erie County Clerk's Office two months ago when Bloomberg News rolled out a series of stories showing how predatory lenders terrorize and bankrupt small business owners through a legal tool called confessions of judgment.

Among the stories highlighted by Bloomberg News reporters and data crunchers was that, in 2017, Erie County rubber-stamped more than 5,200 of these legal documents, which Bloomberg reported "give loan companies the legal authority to raid borrowers’ bank accounts and seize other assets, bypassing the fuss and expense of a trial."

That was more than any other county in the state for that year.

Since then, County Clerk Michael "Mickey" P. Kearns said he has revamped the Clerk's Office rules to keep the office from being a favorite tool of predatory lenders.

As of Jan. 1, Kearns recently announced, Erie County would no longer process confessions of judgment if the case was not generated in Erie County.

The Bloomberg series highlighted stories of small business owners waking up one day to find their business bank accounts frozen and cleaned out with help from clerk's offices like the one in Erie County.

The culprits, in these cases, are not traditional lenders – like a bank – but part of a merchant cash-advance industry that sprang up in the United States after the 2008 financial crisis.

"This is a huge industry," Kearns said Thursday.

"We're talking about, in 2012, in New York, it was worth an estimated $1.5 billion," he added.

As Kearns described them, confessions of judgment are oppressive legal instruments that grant a creditor the absolute right to enter a judgment against a debtor. There is no requirement that the judgment be reviewed by a judge – and the creditor has sole discretion to determine whether, or when, the debtor is in default. Following that, the creditor can file a judgment and seize the debtor's bank accounts or garnish his or her wages.

"We have usury laws in New York State. The predator lender can charge above that usury rate of 25 percent, because the money is not technically a loan. It's a cash advance," Kearns said.

How the Erie County Clerk's Office, and other clerk's offices across the state, became party to these transactions is due to the constraints of existing law, Kearns said.

He said his office will reject confessions of judgment in which neither the borrower nor the lender has a connection to Erie County. Often the Erie County Clerk's Office has received documents involving borrowers not only from outside the county, but also outside the state. Kearns said Erie County earned a $26 filing fee on each of the confessions of judgment it processed.

"They're looking for venues where they can get these processed," Kearns said, of the lenders who file the judgments.

Niagara County Clerk Joseph A. Jastrzemski said his office processed fewer than 500 of these judgments in 2017 but, until changes are made at the state level, they are bound to follow the law.

"If they're not a resident of Niagara County and they don't own property in Niagara County, we reject it. We stay consistent in that every step of the way," Jastrzemski said.

Kearns rejected assertions that any of the judgments that wound up in Erie County have ever been rubber-stamped by his office.

"We actually review them, so it's not a rubber stamp, because we have to certify those documents. Even prior to me making a decision not to accept those on Jan. 1, we did reject some of those if we felt as though it was missing information or we felt as if there were discrepancies on the document or missing information on the document," Kearns said.

The additional scrutiny has caused some lenders to balk, he added.

“When one of my staff informed a law firm over the phone of the policy the individual on the other end of the phone said, ‘It was fun while it lasted.’ Can you imagine someone saying that it’s ‘fun’ to engage in a practice that can ruin businesses and families?” Kearns said in a statement Thursday.

Both Kearns and Jastrzemski said they support efforts by Gov. Andrew M. Cuomo to curb the abuse of confessions of judgment in New York State.

Kearns said he raised the topic at a meeting of county clerks Monday in Albany.

He noted that clerks in Orange and Richmond counties are now rejecting more of these confessions of judgment as well.

"They were concerned about the predatory practices that we are participating in, which I believe are beyond usury. I said they were criminal. And I said I don't want to become a sanctuary county for abusive predators. I have stopped accepting those confessions of judgment that began outside of Erie County," Kearns said.

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