borrow trouble

New York Businesses Struggle With Debts After Reform Left Them Out

Julio Baez say he was forced to shutter his East New York bodega after falling behind on exorbitant debt payments.
Julio Baez say he was forced to shutter his East New York bodega after falling behind on exorbitant debt payments. Photo: Ben Fractenberg/THE CITY

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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 effective 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.

Signing Away Rights

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.

The Mr. Bing food stall at the Urbanspace Vanderbilt food hall in Midtown. Photo: Gabriel Sandoval/THE CITY

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.

Nepali Restaurant Hit

In Queens, Nepali Bhanchha Gar, a Jackson Heights restaurant that’s earned rave reviews, was hit with a judgment just months after its owner signed a confession of judgment in mid-August 2019.

Owner Yamuna Shrestha obtained $14,000 from Long Island-based Last Chance Funding Group, according to an agreement filed in Queens Supreme Court. That pact allowed Last Chance to draw $359 from the restaurant’s bank account daily, the records show.

With legal fees, the judgment signed by the county clerk on Dec. 13 shows Shrestha obligated to pay $23,000 on the $14,000 advance.

Shrestha referred an inquiry to a man she described as a relative. That person, who gave his name only as Bobby, told THE CITY that the loan was taken out to finance improvements, and that bank payments had stopped for only a few days.

Last Chance Funding Group could not be reached for comment.

‘Kind of Desperate’

In East New York, Brooklyn, Julio Baez turned to a cash advance in October 2018 to keep his bodega, J & Y Deli, afloat after less than a year in business.

When his grand-opening specials ended, sales slowed, he said. Baez already owed money through a bank loan and needed more cash to keep afloat. So he started searching online for options.

“I was kind of desperate,” he said.

He said he entered his phone number into an online ad for fast cash and soon after got a call from Quicksilver Capital, based in Borough Park, Brooklyn.

Quicksilver advanced Baez $40,000, based on a commitment he made to hand over $312 every day until he’d paid back $56,000 in all, according to court records.

Baez couldn’t keep up. Because he’d signed the confession of judgment that pre-admitted guilt, Quicksilver had the right to get a court order to take what it was owed, directly from his accounts.

“If you don’t pay them — because it’s in the contract, you are the responsible for the payment — they go into your business and close it,” Baez said. “You pay them or you lose.”

On top of the daily payments came stiff fees. Baez said the company charged him $250 every time his bank account balance didn’t cover the daily amount owed. Once, when he tried to switch bank accounts, he said, they charged him $5,000.

Quicksilver did not respond to requests for comment from THE CITY.

By September 2019, Baez had managed to pay back Quicksilver $34,170, court documents show. But with interest and fees — including more than $7,000 to cover the cost of Quicksilver’s attorneys — Baez was still on the hook for $29,336.

On Sept. 6, Quicksilver got a judgment executed by the Kings County Supreme Court clerk, giving the company the right to get back its money.

Before the end of that month, Baez closed up shop.

National Action

Following the Bloomberg News investigation, which showed the toll on businesses from Florida to Arizona, small business advocates all over the country began lobbying to outlaw confessions of judgment.

Washington lawmakers are considering bans on confessions of judgment for business cash advances nationally, and they remain illegal in many states.

But not in New York — at least not for local businesses.

Last year, looking to curb an inundation of out-of-state cases in county courts, the state Office of Court Administration asked the New York legislature to limit the use of confessions of judgment.

The City Bakery on West 18th Street unexpectedly closed after nearly 30 years in business, Oct 21, 2019.
The City Bakery on West 18th Street unexpectedly closed after nearly 30 years in business, Oct 21, 2019. Photo: Ben Fractenberg/THE CITY

Cuomo said in signing the measure: “New York courts exist to uphold the rule of law, not to give unscrupulous creditors a means to prey on consumers.”

But the bill he signed allows confessions of judgment in New York courts so long as they are filed in the county where the borrower lives — that is, the borrower is a New Yorker.

State Sen. Brad Hoylman (D-Manhattan), a co-sponsor of the bill, told THE CITY Monday there’s “no excuse for unscrupulous lending practices.”

“That’s why I’m deeply concerned by reports of abuses from within New York State and am exploring options to curb abuses of confessions of judgment from in-state creditors,” he said.

‘It Makes No Sense’

State Assemblymember Yuh-Line Niou (D-Manhattan) first encountered confessions of judgment in Chinatown, where she met a local businesswoman who had taken out a merchant cash advance that ultimately led to the shuttering of her store.

When Niou first looked at the terms of the agreement the woman signed, she was “stunned.”

“They can literally take your personal account and just pull right straight from it,” she said. “And that is the danger.”

Niou and State Sen. James Sanders (D-Queens) have drafted a bill that would ban confessions of judgment outright. In New York City, a bill is pending in the City Council that would ban the agreements for the purchase of taxi medallions.

Meanwhile, an investigation of the high-interest lending industry by State Attorney General Letitia James is ongoing, according to a source familiar with the probe.

This year, Cuomo highlighted restricting confessions of judgment among his 2020 priorities.

But his proposal would only codify an existing Federal Trade Commission ban on confessions signed by consumers. It would not protect businesses like City Bakery, Mr. Bing, Bhanchha Ghar or J & Y Deli.

Some reform advocates say change should happen at the federal level. Rep. Nydia Velazquez (D-Brooklyn/Queens/Manhattan), who introduced a proposed ban on confessions of judgment last year, said she supports Niou’s effort but aims to “ban this practice nationally.”

“Certainly, I’m glad Governor Cuomo took the steps he did, but it makes no sense that our state’s businesses are not fully protected,” she said in a statement.

A Senate bill from Marco Rubio (R-Florida) and Sherrod Brown (D-Ohio) would similarly ban the practice.

Fighting Back

In the meantime, some New York lawyers are finding creative ways to fight back.

Attorney Isaac Stern of Levenson Law Group, in Nyack, said his firm has taken about a dozen confessions of judgment cases in just two years, many in Rockland and Orange counties.

They’ve had some success arguing that the agreements exceed New York State’s 25% interest rate limit — amounting to the crime of usury.

One lawsuit in Rockland County is fighting a judgment on behalf of Bubby’s Blintzes, a wholesale distributor that borrowed $200,000 in a confession of judgment agreement in October of 2018. By the attorney’s calculation, that agreement had a 200% effective interest rate, court documents show.

A medallion on a New York City taxi.
A medallion on a New York City taxi. Photo: Ben Fractenberg/THE CITY

Black-owned businesses often get hit hardest, he’s found. He’s also had many Hasidic Jewish clients who may not read or write in English. “It’s either minority businesses or, you know, people that are completely illiterate that they’re really taking advantage of,” he told THE CITY.

Heskin said that in one class-action suit he’s working on, 175 judgments were filed on New York businesses by just one lender since September, after the reform went into effect.

Things aren’t much better, he says, for out-of-state businesses, which gained the right to defend themselves, but often can’t afford the time or expense of travelling to New York.

“It’s business as usual,” he said. “They just have to wait 20 to 30 days before they start freezing bank accounts.”

After shuttering his Brooklyn bodega, Baez considered opening another business.

But he quickly realized his credit won’t allow for it. He’s now considering bankruptcy options while driving trucks to make a living.

“I’m feeling very angry right now,” he said. “I took a lot of loss.”

Have you ever signed a confession of judgment in New York? We’d like to know how it went. Please get in touch with Rachel Holliday Smith at rsmith@thecity.nyc or Josefa Velasquez at jvelasquez@thecity.nyc to share your story.

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