How does the MCA confession of judgment (COJ) actually work state-by-state in 2026, and where is it still enforceable?

Full answer

What a confession of judgment actually is. A confession of judgment (COJ) is a written instrument signed by the debtor at the time of contract formation in which the debtor expressly authorizes a creditor to obtain a court judgment against the debtor upon a default event, without notice, without opportunity to be heard, and without merits review. In MCA contracts, the COJ is typically a separate sworn affidavit signed by the merchant and personal guarantors at deal closing. Upon default, the funder presents the COJ to a court clerk in the designated jurisdiction, the clerk enters judgment, and the funder can immediately begin enforcement (bank levies, asset seizures, liens). The merchant typically learns of the judgment only when assets are frozen.

Why COJs were the dominant MCA collection tool pre-2019. From roughly 2010-2019, COJs filed in New York courts were the dominant collection mechanism for MCA funders. New York's COJ procedure was uniquely funder-friendly. (a) COJs could be filed against out-of-state merchants based on contract venue selection. (b) NY court clerks entered judgments mechanically upon COJ presentation. (c) NY judgments could be domesticated in any state under the Full Faith and Credit Clause. (d) Time from default to enforceable judgment was often 7-14 days. (e) Merchants typically had no notice until bank accounts were frozen. The Bloomberg Businessweek investigation in 2018 documented thousands of COJs filed against out-of-state merchants in NY courts, driving the 2019 reform.

New York 2019 reforms — what changed. New York CPLR 3218 was amended effective August 30, 2019 (S. 6395 / A. 8024) to prohibit COJ filing in NY courts against debtors who are not NY residents at the time the COJ is signed. Key provisions. (a) COJs signed by non-NY residents cannot be filed in NY courts even if the underlying contract designates NY as the venue. (b) NY courts must reject filings of non-NY-resident COJs. (c) COJs by NY residents remain valid and enforceable. (d) Funders shifted strategy to either (i) filing COJs in other states with permissive rules, or (ii) pursuing traditional litigation in NY courts (which still moves faster than most states). The 2019 reform substantially reduced but did not eliminate COJ usage in MCA collections.

State-by-state COJ enforceability. (a) California — prohibits COJs entirely in any contract; CA Civil Code 1132. Even if signed in another state, CA courts will not enforce a foreign COJ against CA assets where due-process challenges succeed. (b) Texas — prohibits COJs in consumer contracts; commercial COJs allowed but procedurally restricted; domestication of out-of-state COJs faces collateral attack opportunities. (c) Florida — allows COJs in commercial contracts but requires the COJ to be filed within 10 days of default and procedurally specific. (d) Pennsylvania — allows COJs (warrants of attorney) in commercial contracts and is a common alternative-to-NY filing jurisdiction post-2019; procedurally permissive. (e) New Jersey — substantially restricts COJ enforceability against NJ merchants by 2020 reforms. (f) Massachusetts — generally allows but with notice requirements. (g) Illinois — allows but with disclosure requirements at signing. (h) Most other states — allow COJs in commercial contexts with varying procedural rules.

How funders shifted post-2019. After NY reforms, funders adapted in several ways. (a) Pennsylvania filing — PA has permissive COJ rules and became a common alternative venue. Funders now often designate PA as contract venue specifically for COJ availability. (b) Maryland filing — MD allows COJs with relatively permissive rules. (c) Confession-of-judgment in originating-merchant state — when state law allows, COJ filed locally against the merchant. (d) Traditional NY litigation — NY courts still allow standard breach-of-contract actions which move faster than most state courts (4-8 months to judgment vs 12-18 months typical). (e) Arbitration with confirmation — obtain arbitration award then confirm in court for enforcement. (f) UCC enforcement without judgment — for collateralized advances, exercise UCC Article 9 rights without going through judgment process.

Domestication of out-of-state judgments. A judgment obtained in one state (e.g., a PA COJ judgment) must typically be domesticated in the state where the merchant's assets are located before it can be enforced against those assets. Process. (a) Funder files the out-of-state judgment with a state-court clerk in the target state under the Uniform Enforcement of Foreign Judgments Act (UEFJA) or state equivalent. (b) Notice is typically given to the merchant. (c) Merchant has a window to file a collateral attack (typically 30 days) challenging domestication on grounds like lack of jurisdiction in the original court, denial of due process, or violation of the target state's public policy. (d) If unchallenged or unsuccessful, the foreign judgment is treated as a local judgment for enforcement purposes. Domestication is the merchant's primary opportunity to challenge a COJ-based judgment in their home state.

Due-process challenges to COJs. Successful challenges to COJ enforcement typically rely on due-process arguments. (a) Knowing and voluntary waiver — merchant must have knowingly and voluntarily waived notice and hearing rights. Documentation often shows COJs signed at closing along with dozens of other documents without separate explanation, supporting challenges. (b) Adequate consideration — the contract underlying the COJ must be supported by adequate consideration. (c) Procedural compliance — the COJ filing must comply with the procedural rules of the state where filed. (d) Forum-state public policy — some states refuse to enforce foreign COJs that violate forum public policy (CA's general COJ prohibition is the strongest example). (e) Fraud or duress — if COJ was obtained through misrepresentation or coercion, it can be set aside. These challenges are fact-specific and require experienced counsel.

What to do if a COJ has been filed against you. (a) Identify immediately — bank account freezes or asset seizures are typically the first notice. Demand the court clerk's contact information and case number. (b) Obtain the COJ document, the underlying contract, and the judgment order. (c) Calculate domestication deadlines in your home state — typically 30 days from notice. (d) Engage counsel experienced in MCA collections and COJ defense — this is specialized practice. (e) Evaluate vacatur grounds in the filing state — due process violations, procedural defects, fraud-in-inducement claims. (f) Evaluate domestication-stage challenges in your home state — collateral attack opportunities, forum public-policy defenses. (g) Negotiate workout in parallel — many funders will settle for 40-70 cents on the dollar to avoid prolonged litigation. (h) Address bank-account freezes immediately — emergency motions can sometimes unfreeze operating accounts pending merits review.

What to do BEFORE signing a contract with a COJ. (a) Read the entire contract package including separate COJ affidavit (often presented as routine paperwork). (b) Identify the filing-state designation in COJ — note that this may differ from the contract's general venue clause. (c) Evaluate whether the filing-state allows COJs and whether your home state would enforce a foreign COJ. (d) Negotiate removal of COJ provision before signing — some funders will agree, especially for larger or more competitive deals. (e) Consider alternative funders that do not use COJs (Credibly, Forward Financing, Bluevine, and a growing list of funders have eliminated COJs from standard contracts). (f) If COJ is non-negotiable and you proceed anyway, plan for the worst-case enforcement scenario.

Funders that have eliminated COJs. Several funders have publicly eliminated COJs from standard contracts in response to regulatory and reputational pressure. As of 2026, COJ-free or COJ-minimal funders typically include Credibly, Forward Financing, Fora Financial, Bluevine, Mulligan Funding, and some bank-affiliated lenders. Funders that still routinely use COJs include certain Greenbox-tier and lower-tier funders, particularly those filing in Pennsylvania or other permissive states. Confirm current practice at the time of signing — funder policies evolve.

Regulatory landscape on COJs. (a) Federal Small Business Lending Fairness Act — proposed federal legislation to ban COJs in small-business financing contracts; has not passed but introduced repeatedly. (b) State legislative activity — several states have introduced COJ-restriction bills following the NY 2019 model; some passed (NJ), others pending. (c) FTC enforcement — FTC has pursued enforcement actions against MCA funders for COJ-abuse patterns. (d) State attorney general actions — NY AG has pursued multiple MCA funders for COJ-related conduct. The regulatory direction is clearly toward COJ restriction, though pace varies by jurisdiction.

Bottom line. Confession of judgment in MCA contracts 2026 has been substantially restricted since New York's 2019 reforms but remains an enforcement tool in Pennsylvania, Maryland, and many other states. California prohibits COJs entirely; New Jersey, Texas, and a growing list of states restrict enforcement. Merchants should identify COJ provisions before signing, negotiate removal where possible, prefer COJ-free funders, and understand that COJ-based judgments require home-state domestication for enforcement against home-state assets. If a COJ has been filed against you, engage specialized counsel immediately — emergency motions and collateral attacks are time-sensitive. The regulatory trajectory is clearly restrictive but COJ remains a meaningful risk in 2026 MCA contracts.

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