It’s been six months since Gov. Andrew Cuomo signed a law barring the practice of making small businesses sign away legal rights in exchange for high-interest, high-risk cash advances.
But that change doesn’t apply to New Yorkers.
The so-called confessions of judgment are illegal — but only for lenders located out of state. The law, passed after a Bloomberg News expose, was aimed at ending a flood of nonpayment cases clogging county courts.
A review by THE CITY of state court records found that small businesses in New York are continuing to sign papers with in-state lenders that leave them defenseless if they struggle to make payments amid interest rates hitting as high as 200%.
The court records show confessions of judgment being used to collect debts from everything from local restaurants to nail salons to a nightclub to an accounting firm, among other small businesses. Cab drivers who borrowed to buy their own taxi medallions have been hit hard by the judgments, too, as highlighted in a New York Times series.
On Feb. 11, a Midtown food hall outpost of the Chinese street food mini-chain Mr. Bing and its owner, Brian Goldberg, were sued in state Supreme Court by Lower Manhattan-based Capital Advance Services after accepting a $25,000 cash advance less than a month earlier, court records show.
To take the money — at a 25% interest rate — Goldberg signed a confession of judgment, a statement that admitted failure to honor the debt. That meant if he could not make his daily payments of $465.63, the lender had the right to collect the advanced sum in full.
Capital Advance Services is demanding $30,731 plus interest.
“We’re trying our best to deal with it. I can’t say anything more,” Goldberg told THE CITY when reached by phone.
Capital Advance Services did not respond to a request for comment.
Goldberg’s legal battle follows the shuttering of another Manhattan foodie magnet, City Bakery, just days after a cash advance company obtained a judgment against its owner — who also signed away his right to defend himself in court.
“The biggest loser, unfortunately, in this legislation are New Yorkers,” said Shane Heskin, an attorney who works with small-business borrowers ensnared by high-interest cash advances.