Not long after Janelle Duncan\’s Florida real estate agency failed in February 2018, she collapsed and was rushed to the hospital, vomiting bile. Her dreams of entrepreneurship were dashed by a loan company that seized $52,886.93 from her bank account without warning. Duncan had borrowed from what\’s known as a merchant cash-advance company. Completely unregulated, and largely unreported on, the industry has boomed since the financial crisis, luring restaurant owners, truckers, and florists who\’ve been turned away from banks with offers of quick cash.
Through a first-of-its-kind investigation into New York state court records, Bloomberg News was able to uncover an industry that loaned small-business owners an estimated $15 billion last year at interest rates often higher than mafia loan sharks once demanded.
Bloomberg News reporters Zachary Mider and Zeke Faux learned about Duncan\’s story while investigating how cash-advance companies had co-opted New York\’s court system and turned it into a high-speed debt-collection machine. Duncan, like most borrowers, had signed an arcane legal document called a confession of judgment as part of her loan application. By signing, she\’d forfeited her legal rights, allowing the lender to file a court case against her without her knowledge and to win it without a hearing or proof.
But Duncan’s case wasn’t unique. Over a six-month period, with data analysts David Ingold and Demetrios Pogkas, Bloomberg compiled and analyzed hundreds of thousands of New York State court documents to create what’s likely the first database of New York confession of judgment cases. The data revealed a billion-dollar lending industry that leveraged the New York court system to collect on predatory loans in nearly every U.S. state and Puerto Rico.
Mider and Faux interviewed dozens of other borrowers who described lenders forging documents, lying about how much they were owed, or fabricating defaults out of thin air. They developed sources within the industry and convinced them to reveal their tricks. They traced the history of confessions of judgment, from Charles Dickens’s 1837 novel The Pickwick Papers to a boiler room in downtown Manhattan run by the man who inspired the stock-scam movie Boiler Room.
Bloomberg’s five-part series included stories focusing on a New York City marshal who earned $1.7 million last year collecting debts for cash-advance companies, making him the highest-earning city official; on the role of New York county clerks in rubber-stamping the confessions; on one of the industry\’s worst offenders, a convicted marijuana trafficker who built a business-loan empire while out on bail; and on an ex-convict who made intimidating house calls for a cash-advance companies when borrowers fell behind on their debt.
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