“This is in many ways worse, because the borrower has no recourse,” Brown said. “At least forced arbitration has an arbitrator that might play fair.”
The lenders that use the confessions call themselves merchant cash-advance companies. It’s an industry that’s been booming since the financial crisis as banks have pulled back from lending to small businesses. They lure contractors, truckers and restaurant owners with offers of fast cash and charge interest rates that can top 400 percent annualized, more than mafia loan sharks once demanded.
The confessions are generally filed in New York State courts, no matter where the borrower is located. Cash-advance companies have secured more than 25,000 judgments in the state since 2012, worth an estimated $1.5 billion, according to data compiled by Bloomberg. On Dec. 3, New York’s attorney general opened an investigation into the cash-advance industry in response to the Bloomberg News articles.
This article was provided by Bloomberg News.