8 ms·

Predatory lenders have co-opted New York’s court system

192 points by petethomas 8y ago

amingilani 8y ago
Wait ELI5: How can you presign a confession to something before you commit it? It's like signing a confession to murder before someone dies :/ How is this admissible? I'm not American.
- defen 8y ago
  Good comment here: https://news.ycombinator.com/item?id=18497717 https://news.ycombinator.com/item?id=18497717 from the previous discussion about why this vehicle exists, however it sounds like it's being abused / exploited by these lending firms. They're not actually trying to make money from interest (they're happy to break even on the loan) - rather they are making money from penalties and fees assessed when the borrower "violates" the agreement (said violation often involving fraud by the lender)
- dpwm 8y ago
  In most states it's not considered admissable. That is why they use New York.
  - sschueller 8y ago
    But they are still able seize assets in other states if the bank has a branch in NY.
- lgregg 8y ago
  There are a lot of old laws still on the books.
- turc1656 8y ago
  This is kind of the equivalent of waiving your rights. For example, you've probably heard of contracts where you sign away your right to sue someone in civil court and agree to go to arbitration instead. That's signing away your rights. Similar story here. You are agreeing in advance, to waive your right to defend yourself in court. Since these are civil cases, the judgment is always in favor of the company filing the suit because you basically agreed to let them win if they ever decided to make such a filing. In civil cases, there isn't the same burden of proof as a criminal trial. It's more of a "which side does the scale tip to with the information at hand" thing. And since the defendant agreed to not defend themselves and conceded guilt in advance, the court always sides with the accuser. Didn't read this particular article but read a different one earlier this week on this topic so not sure if it's covered here but it's a really old law/tool and has been outlawed almost everywhere. I believe it's outlawed in the entire country for personal dealings because of laws regarding due process and consumer protection. However, it is still allowed in a few states for business dealings which is why these loan places use this legal process exclusively for business loans. They don't have the same level of protection that an individual has, even though a lot of these businesses are run by 2-3 people who put up their own assets against the loan.
  - jandrese 8y ago
    That seems to be putting a lot of faith in the landlord not to screw you over. It's basically Russian Roulette. But if it's a seller's market what are you going to do? Live under a bridge? Live in the sewer? Live in New Jersey?
    - turc1656 8y ago
      Totally agree. You have no control once you sign that paper if the other side will be honest or honorable in any way. And since there is no incentive for them to not screw you, and actual incentive to screw you (since they get a higher return over a shorter time) that should be the expectation. I think the real problem here is that people either don't read or don't understand what they sign. I mean you would think that a document labeled confession of judgment might alarm people, but apparently not. I recently moved and during the mortgage process for our new place I raised a number of issues regarding the accuracy of the information that was filled in. Nothing fraudulent or terrible on their part - just errors. When I raised these issues (including a math error on the loan disclosure and the omission of a loan credit I was promised) so they could correct and reissue before I signed them, the loan officer said, "You really read through these documents, huh?" and I was like "Well yeah. Who the hell wouldn't read through critical documents like this that put them on the hook for hundreds of thousands of dollars?" and she responded, "Basically everyone. They all pretty much just sign without reading. That's why we had to have that recorded phone call for documentation on our side to prove you actually understood at least the basics of what you signing." I mean I know almost no one reads EULAs, but mortgages?! That's just depressing.
      - marcosdumay 8y ago
        > I think the real problem here is that people either don't read or don't understand what they sign. If you are looking for real problems, that's way on the back of the line. The top one I can find is, how can somebody simply sign away their right to access the Judiciary system? How can those huge contracts with incomprehensible be binding for normal people? How come people have no alternative to signing them?
- logfromblammo 8y ago
  What the law giveth, contract may take away. Unless the law says that contracts cannot. For instance, in the common commercial code passed in nearly identical form by all 50 US states, a promissory note comes with the rights of presentment and notice of dishonor baked in. The right of presentment means that the owner of the note has to show it to you when demanding payment; this ensures that you are paying the correct person, so that if the original owner of the note sells it to someone else (as it is a negotiable instrument), you won't get demands for payment from the new owner as well as the old. You can look at the note at the time of presentment and demand, to check the endorsements, paying only the last owner recorded on the note (or the bearer, if it has been converted). The right of notice of dishonor means you must be informed in a legally-conformant way if someone to whom you are legally indebted is not satisfied with a payment you have rendered. These are commonly waived on the notes backing home mortgages. Without them, the bank can put the note in a filing cabinet somewhere, and just send you a letter when they sell it to a new owner. You never see the note again, which means the finance industry can get up to all kinds of shenanigans with MERS, obfuscated ownership, and separating the beneficial ownership of the note from enforcement of the security instrument. And waiving right to notice of dishonor means that the owner can start foreclosure as soon as you miss a payment, rather than first informing you that you missed a payment. While the rights are reasonable, hiring people to carry notes around to show them and demand payment all the time would make servicing of loans much more expensive, and therefore puts an uncompetitive floor on the interest rate for notes that do not waive those rights. Waiving the rights works, but only as long as you can trust the owners to honor the system.... In the case of the confessions of judgment, the loans cannot be made profitable without them, because the default risk and average cost of litigation is too high. One might argue that we should prefer that such loans not be made at all, rather than made only with waivers of critical consumer rights, but the state of New York has decided to allow the predatory loans to exist, and to profit from them and their lenders. The borrowers bear the burden of assessing their own risks; the state will not protect them. The remedy in a representative democracy would be to vote out of office those officials that support the practice.
deleted 8y ago
[deleted]
dpwm 8y ago
This is part 3 in a series of articles. I've just tracked down parts one [0] and two, [1] posted recently. [0] has quite a few comments on it. [0] https://news.ycombinator.com/item?id=18495812 https://news.ycombinator.com/item?id=18495812 [1] https://news.ycombinator.com/item?id=18542869 https://news.ycombinator.com/item?id=18542869
thomasfedb 8y ago
What I find most bizarre is that the court has jurisdiction when both the lender and borrower are foreign to it. How's that work?
- nbp234 8y ago
  Lots of contracts specify a jurisdiction to resolve any disputes over the agreement. That's probably what's happening here.
  - ratmice 8y ago
    I believe the reason they gave from the previous article was the bank has a branch in new york.
    - MattGrommes 8y ago
      Also the lenders know that the banks rarely examine all the requests they receive. The banks tend to just follow the directive so they don't have to spend money/time on looking into them.
  - anticensor 8y ago
    Entity resolving the dispute may ignore jurisdiction choice.
talltimtom 8y ago
> They get around usury laws by saying they aren’t making loans but advancing cash in exchange for a share of future revenue. Didn’t stripe also resently start doing this? Does anyone know if they gearing up a business as a predatory lender as well?
hpbd 8y ago
Predatory lenders from NY? Wow, what an antisemitic article. Really surprised to see this on Bloomberg from all places.
MarkusAllen 8y ago
Everyone... I mean EVERYONE needs to master the laws of debt collection. Even if we think we are "responsible." Because all of us are a "situation" away from losing it all. Here in the USA, there is a "statute of limitations on debt". If we fall onto bad times, the laws protect us from aggressive debt collectors. We simply stop paying all debts... and the law cleans our slate fresh after x amount of years (depending on each state). No bankruptcy needed.
- olivermarks 8y ago
  Unfortunately US 'aggressive debt collectors' can leverage legal loop holes and corrupt officials to take your possessions by force. The 2008 housing repossession stats from lenders such as wells fargo are a good example. in some cases they were repoing houses that had no late payment or mortgage issues whatsoever.
  - onetimemanytime 8y ago
    They are aggressive only when they smell blood. Ignore them and you can settle for 20%. They probably bought the debt for 5% so they are still ahead. "Ignore them" is also easier said than done since they will ruing your credit report and maybe sue you.
    - paulie_a 8y ago
      There are different types of debt. I don't know for a fact if it is still true, but medical debt on your credit score wasn't even considered for a mortgage for the most part. If you had 20 past due copays that was worse than owing 20k
      - chimeracoder 8y ago
        > If you had 20 past due copays that was worse than owing 20k Copays are typically (though not always) paid at time of service, not billed after-the-fact. In any case, it takes a long time for a bill to become overdue and get sent to collections; before that, it won't show up on your report at all. Having 20 different overdue bills (of any sort) in collections is definitely an objectively worse sign of creditworthiness than having a single active loan of 20k of any nature.
etdmmi 8y ago
> In 2009, while still on probation, Glass and a friend named Isaac Stern started a company called Yellowstone Capital LLC. (ABC, the firm that wiped out the Duncans, is one of more than a dozen corporate names used by Yellowstone’s sales force.) (((Isaac Stern)))
dsfyu404ed 8y ago
Companies that do business like this can only ruin so many people's lives before someone uses their last remaining money to buy a High Point and a bus ticket and makes their business practices the subject of national headlines. Might not happen today. Might not happen this decade but eventually someone will snap. It might not come to that. The legislators might catch wind of it and change the law in a different way but the risk is always there.
- JasonFruit 8y ago
  It may be wrong, but it does happen, and the desperation of being underemployed and drowning in debt is powerful.
deleted 8y ago
[deleted]
hedora 8y ago
The US seriously needs to strike the work “criminal” from the 6th amendment: “In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence.”
- danesparza 8y ago
  With trial in absentia laws and precedent, I'm not sure this would help. Reference: https://en.wikipedia.org/wiki/Trial_in_absentia#United_States https://en.wikipedia.org/wiki/Trial_in_absentia#United_State...
- wahern 8y ago
  You basically have most of the same rights in civil courts, and where they vary they mostly vary for good reasons. The real issue is that contract law permits waiving many of these long before any dispute arises. A body of law arose to limit the detrimental effects (unconscionability, etc), but Federal law (statutory and case law) have increasingly made these state law-based safeguards ineffective.[1] Federal law lacks many of these safeguards, and instead principally relies (if at all) on regulatory agencies to police abusive behavior. But that doesn't do much to remedy injustices in the context of individual disputes. We should be hesitant to enshrine things in the Federal Constitution. Often times doing so results not only in fixing a limit on how narrow your rights, but also as a practical matter how expansive they can be, depending on the political bent of the Supreme Court. [1] And then, of course, there's the glaring loophole of New York's confession of judgment. But that issue also involves some complex conflict of law issues. It's possible states could unilaterally shield their residents from New York's policies, but I don't know nearly enough to be able to say with any confidence what the best strategies might be. Also note that the same issues can exist across international jurisdictions. For now that's mostly a concern of the very rich and multinationals, but once upon a time these cross-state conflicts were also only the concern of the rich and large businesses.
lolc 8y ago
> he ruled, "[...] a criminally usurious transaction" The only proper way to judge the actions of these crooks.
emmanueloga_ 8y ago
In the subject of the workings of the US judicial system, season 3 of Serial is all about courthouse stories. I really enjoyed the episodes so far. https://serialpodcast.org/ https://serialpodcast.org/
dba7dba 8y ago
I am genuinely surprised no public announcement of any kind has been made by any politician of NY yet about this. Maybe some have and I just don't know? Or could it be that all NY politicians have been paid off by these entrepreneurs?
Jadenmoore 8y ago
This dude is great and legit. I was ripped by two credit companies claiming to be credit experts and my scores keep going down instead. I saw the guru contact on a forum and i decided to contact him to work on my report. I explained how bad my score was and he's really interested in helping and we got started and he promised to get my work done in 72 hours. I provided him my details and he look up my file and started work. He got my work done as promised and ask me to check credit karma and i get to see the magic this guru did to my report. He is a guru for real!! He helped me increase my credit score 815 and also help me off with the hard inquires and also the ones that were mistakenly reported. Now i can say i can enjoy the holiday in peace. all thats to the guru. Get to him (Computerhackguru at GMAIL dot COM or (513) 453-6539).

192 points by petethomas 8y ago

Wait ELI5: How can you presign a confession to something before you commit it? It's like signing a confession to murder before someone dies :/ How is this admissible? I'm not American.

defen 8y ago
Good comment here: https://news.ycombinator.com/item?id=18497717 https://news.ycombinator.com/item?id=18497717 from the previous discussion about why this vehicle exists, however it sounds like it's being abused / exploited by these lending firms. They're not actually trying to make money from interest (they're happy to break even on the loan) - rather they are making money from penalties and fees assessed when the borrower "violates" the agreement (said violation often involving fraud by the lender)
dpwm 8y ago
In most states it's not considered admissable. That is why they use New York.
- sschueller 8y ago
  But they are still able seize assets in other states if the bank has a branch in NY.
lgregg 8y ago
There are a lot of old laws still on the books.
turc1656 8y ago
This is kind of the equivalent of waiving your rights. For example, you've probably heard of contracts where you sign away your right to sue someone in civil court and agree to go to arbitration instead. That's signing away your rights. Similar story here. You are agreeing in advance, to waive your right to defend yourself in court. Since these are civil cases, the judgment is always in favor of the company filing the suit because you basically agreed to let them win if they ever decided to make such a filing. In civil cases, there isn't the same burden of proof as a criminal trial. It's more of a "which side does the scale tip to with the information at hand" thing. And since the defendant agreed to not defend themselves and conceded guilt in advance, the court always sides with the accuser. Didn't read this particular article but read a different one earlier this week on this topic so not sure if it's covered here but it's a really old law/tool and has been outlawed almost everywhere. I believe it's outlawed in the entire country for personal dealings because of laws regarding due process and consumer protection. However, it is still allowed in a few states for business dealings which is why these loan places use this legal process exclusively for business loans. They don't have the same level of protection that an individual has, even though a lot of these businesses are run by 2-3 people who put up their own assets against the loan.
- jandrese 8y ago
  That seems to be putting a lot of faith in the landlord not to screw you over. It's basically Russian Roulette. But if it's a seller's market what are you going to do? Live under a bridge? Live in the sewer? Live in New Jersey?
  - turc1656 8y ago
    Totally agree. You have no control once you sign that paper if the other side will be honest or honorable in any way. And since there is no incentive for them to not screw you, and actual incentive to screw you (since they get a higher return over a shorter time) that should be the expectation. I think the real problem here is that people either don't read or don't understand what they sign. I mean you would think that a document labeled confession of judgment might alarm people, but apparently not. I recently moved and during the mortgage process for our new place I raised a number of issues regarding the accuracy of the information that was filled in. Nothing fraudulent or terrible on their part - just errors. When I raised these issues (including a math error on the loan disclosure and the omission of a loan credit I was promised) so they could correct and reissue before I signed them, the loan officer said, "You really read through these documents, huh?" and I was like "Well yeah. Who the hell wouldn't read through critical documents like this that put them on the hook for hundreds of thousands of dollars?" and she responded, "Basically everyone. They all pretty much just sign without reading. That's why we had to have that recorded phone call for documentation on our side to prove you actually understood at least the basics of what you signing." I mean I know almost no one reads EULAs, but mortgages?! That's just depressing.
    - marcosdumay 8y ago
      > I think the real problem here is that people either don't read or don't understand what they sign. If you are looking for real problems, that's way on the back of the line. The top one I can find is, how can somebody simply sign away their right to access the Judiciary system? How can those huge contracts with incomprehensible be binding for normal people? How come people have no alternative to signing them?
logfromblammo 8y ago
What the law giveth, contract may take away. Unless the law says that contracts cannot. For instance, in the common commercial code passed in nearly identical form by all 50 US states, a promissory note comes with the rights of presentment and notice of dishonor baked in. The right of presentment means that the owner of the note has to show it to you when demanding payment; this ensures that you are paying the correct person, so that if the original owner of the note sells it to someone else (as it is a negotiable instrument), you won't get demands for payment from the new owner as well as the old. You can look at the note at the time of presentment and demand, to check the endorsements, paying only the last owner recorded on the note (or the bearer, if it has been converted). The right of notice of dishonor means you must be informed in a legally-conformant way if someone to whom you are legally indebted is not satisfied with a payment you have rendered. These are commonly waived on the notes backing home mortgages. Without them, the bank can put the note in a filing cabinet somewhere, and just send you a letter when they sell it to a new owner. You never see the note again, which means the finance industry can get up to all kinds of shenanigans with MERS, obfuscated ownership, and separating the beneficial ownership of the note from enforcement of the security instrument. And waiving right to notice of dishonor means that the owner can start foreclosure as soon as you miss a payment, rather than first informing you that you missed a payment. While the rights are reasonable, hiring people to carry notes around to show them and demand payment all the time would make servicing of loans much more expensive, and therefore puts an uncompetitive floor on the interest rate for notes that do not waive those rights. Waiving the rights works, but only as long as you can trust the owners to honor the system.... In the case of the confessions of judgment, the loans cannot be made profitable without them, because the default risk and average cost of litigation is too high. One might argue that we should prefer that such loans not be made at all, rather than made only with waivers of critical consumer rights, but the state of New York has decided to allow the predatory loans to exist, and to profit from them and their lenders. The borrowers bear the burden of assessing their own risks; the state will not protect them. The remedy in a representative democracy would be to vote out of office those officials that support the practice.

deleted 8y ago

[deleted]

dpwm 8y ago

This is part 3 in a series of articles. I've just tracked down parts one [0] and two, [1] posted recently. [0] has quite a few comments on it. [0] https://news.ycombinator.com/item?id=18495812 https://news.ycombinator.com/item?id=18495812 [1] https://news.ycombinator.com/item?id=18542869 https://news.ycombinator.com/item?id=18542869

thomasfedb 8y ago

What I find most bizarre is that the court has jurisdiction when both the lender and borrower are foreign to it. How's that work?

nbp234 8y ago
Lots of contracts specify a jurisdiction to resolve any disputes over the agreement. That's probably what's happening here.
- ratmice 8y ago
  I believe the reason they gave from the previous article was the bank has a branch in new york.
  - MattGrommes 8y ago
    Also the lenders know that the banks rarely examine all the requests they receive. The banks tend to just follow the directive so they don't have to spend money/time on looking into them.
- anticensor 8y ago
  Entity resolving the dispute may ignore jurisdiction choice.

talltimtom 8y ago

> They get around usury laws by saying they aren’t making loans but advancing cash in exchange for a share of future revenue. Didn’t stripe also resently start doing this? Does anyone know if they gearing up a business as a predatory lender as well?

hpbd 8y ago

Predatory lenders from NY? Wow, what an antisemitic article. Really surprised to see this on Bloomberg from all places.

MarkusAllen 8y ago

Everyone... I mean EVERYONE needs to master the laws of debt collection. Even if we think we are "responsible." Because all of us are a "situation" away from losing it all. Here in the USA, there is a "statute of limitations on debt". If we fall onto bad times, the laws protect us from aggressive debt collectors. We simply stop paying all debts... and the law cleans our slate fresh after x amount of years (depending on each state). No bankruptcy needed.

olivermarks 8y ago
Unfortunately US 'aggressive debt collectors' can leverage legal loop holes and corrupt officials to take your possessions by force. The 2008 housing repossession stats from lenders such as wells fargo are a good example. in some cases they were repoing houses that had no late payment or mortgage issues whatsoever.
- onetimemanytime 8y ago
  They are aggressive only when they smell blood. Ignore them and you can settle for 20%. They probably bought the debt for 5% so they are still ahead. "Ignore them" is also easier said than done since they will ruing your credit report and maybe sue you.
  - paulie_a 8y ago
    There are different types of debt. I don't know for a fact if it is still true, but medical debt on your credit score wasn't even considered for a mortgage for the most part. If you had 20 past due copays that was worse than owing 20k
    - chimeracoder 8y ago
      > If you had 20 past due copays that was worse than owing 20k Copays are typically (though not always) paid at time of service, not billed after-the-fact. In any case, it takes a long time for a bill to become overdue and get sent to collections; before that, it won't show up on your report at all. Having 20 different overdue bills (of any sort) in collections is definitely an objectively worse sign of creditworthiness than having a single active loan of 20k of any nature.

etdmmi 8y ago

> In 2009, while still on probation, Glass and a friend named Isaac Stern started a company called Yellowstone Capital LLC. (ABC, the firm that wiped out the Duncans, is one of more than a dozen corporate names used by Yellowstone’s sales force.) (((Isaac Stern)))

dsfyu404ed 8y ago

Companies that do business like this can only ruin so many people's lives before someone uses their last remaining money to buy a High Point and a bus ticket and makes their business practices the subject of national headlines. Might not happen today. Might not happen this decade but eventually someone will snap. It might not come to that. The legislators might catch wind of it and change the law in a different way but the risk is always there.

JasonFruit 8y ago
It may be wrong, but it does happen, and the desperation of being underemployed and drowning in debt is powerful.

deleted 8y ago

[deleted]

hedora 8y ago

The US seriously needs to strike the work “criminal” from the 6th amendment: “In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence.”

danesparza 8y ago
With trial in absentia laws and precedent, I'm not sure this would help. Reference: https://en.wikipedia.org/wiki/Trial_in_absentia#United_States https://en.wikipedia.org/wiki/Trial_in_absentia#United_State...
wahern 8y ago
You basically have most of the same rights in civil courts, and where they vary they mostly vary for good reasons. The real issue is that contract law permits waiving many of these long before any dispute arises. A body of law arose to limit the detrimental effects (unconscionability, etc), but Federal law (statutory and case law) have increasingly made these state law-based safeguards ineffective.[1] Federal law lacks many of these safeguards, and instead principally relies (if at all) on regulatory agencies to police abusive behavior. But that doesn't do much to remedy injustices in the context of individual disputes. We should be hesitant to enshrine things in the Federal Constitution. Often times doing so results not only in fixing a limit on how narrow your rights, but also as a practical matter how expansive they can be, depending on the political bent of the Supreme Court. [1] And then, of course, there's the glaring loophole of New York's confession of judgment. But that issue also involves some complex conflict of law issues. It's possible states could unilaterally shield their residents from New York's policies, but I don't know nearly enough to be able to say with any confidence what the best strategies might be. Also note that the same issues can exist across international jurisdictions. For now that's mostly a concern of the very rich and multinationals, but once upon a time these cross-state conflicts were also only the concern of the rich and large businesses.

lolc 8y ago

> he ruled, "[...] a criminally usurious transaction" The only proper way to judge the actions of these crooks.

emmanueloga_ 8y ago

In the subject of the workings of the US judicial system, season 3 of Serial is all about courthouse stories. I really enjoyed the episodes so far. https://serialpodcast.org/ https://serialpodcast.org/

dba7dba 8y ago

I am genuinely surprised no public announcement of any kind has been made by any politician of NY yet about this. Maybe some have and I just don't know? Or could it be that all NY politicians have been paid off by these entrepreneurs?

Jadenmoore 8y ago

This dude is great and legit. I was ripped by two credit companies claiming to be credit experts and my scores keep going down instead. I saw the guru contact on a forum and i decided to contact him to work on my report. I explained how bad my score was and he's really interested in helping and we got started and he promised to get my work done in 72 hours. I provided him my details and he look up my file and started work. He got my work done as promised and ask me to check credit karma and i get to see the magic this guru did to my report. He is a guru for real!! He helped me increase my credit score 815 and also help me off with the hard inquires and also the ones that were mistakenly reported. Now i can say i can enjoy the holiday in peace. all thats to the guru. Get to him (Computerhackguru at GMAIL dot COM or (513) 453-6539).