Is confession of judgment legal? For consumer debt, no, because a federal rule prohibits them in every state. For business debt, like a merchant cash advance, it depends on the state. Pennsylvania still allows commercial confessions of judgment, but they are restricted or voided in New York, California, Texas, Virginia, and Vermont.
For the basics, see our beginner's guide to confessions of judgment. Below is where each state stands as of September 28, 2026.
Is a confession of judgment legal under federal law?
Federal law bans confessions of judgment for consumer credit, but not for business debt. Under the FTC's Credit Practices Rule, 16 C.F.R. 444.2(a)(1), it is an unfair practice for a lender to take "a cognovit or confession of judgment" from a consumer, meaning someone borrowing for personal, family, or household purposes. That excludes a business taking a merchant cash advance.
The Supreme Court held in D.H. Overmyer Co. v. Frick Co. (1972) that a cognovit clause was not against the Constitution "where the waiver was voluntary, knowing, and intelligently made." It warned that "where the contract is one of adhesion, where there is great disparity in bargaining power, and where the debtor receives nothing for the cognovit provision, other legal consequences may ensue."
Which states have banned or limited confessions of judgment?
Five states have passed laws limiting confessions of judgment in business transactions since 2019. Older rules elsewhere prohibit or condition them.
| State | Cite to Law | Effective Date | Key Provision |
|---|
| New York | N.Y. C.P.L.R. 3218 | August 30, 2019 | Filing only in the county where the defendant resides; a business resides wherever it has a place of business. |
| Virginia | Va. Code Ann. 6.2-2234 | 2022 | Confession provisions in sales-based financing are unenforceable. |
| California | Cal. Code Civ. Proc. 1132 | January 1, 2023 | A judgment by confession "is unenforceable and may not be entered in any superior court." |
| Texas | Tex. Fin. Code 398.055 | September 1, 2025 | A sales-based financing contract containing one is void in its entirety. |
| Vermont | Act 142, 8 V.S.A. 2247(e) | July 1, 2027 | Voids commercial financing contracts containing one, except deals of $1,000,000 or more. |
| Florida | Fla. Stat. 55.05 | Long-standing | Pre-suit powers to confess judgment are "absolutely null and void." |
| Massachusetts | Mass. Gen. Laws ch. 231, § 13A | Long-standing | Stipulations are void; confessed judgments are vacated on motion. |
| Ohio | Ohio Rev. Code 2323.13 | Long-standing | Business use allowed with a printed warning; consumer warrants invalid. |
| Michigan | Mich. Comp. Laws 600.2906 | Long-standing | Allowed if the authority is in a separate document. |
The Texas, Virginia, and Vermont laws are not easily worked around because each also voids "any similar provision."
Did New York ban confessions of judgment?
New York limited confessions of judgment in 2019, but did not ban them. Under Chapter 214 of the Laws of 2019, signed August 30, 2019, a confession can only be filed with the clerk of the county where the defendant resided when the confession was signed or filed. This stops filings against owners who live in another state with no ties to New York. It also blocks filing, in 2026, a confession signed in 2018 that was never filed. The confession must be filed within three years of signing.
This will not apply if the business is based outside New York but has an office or warehouse there, because those companies "reside" in that county under CPLR 3218(b). Nor does it help businesses based in New York. Finally, the 2019 law did not void judgments entered before it, and those can still be enforced. Read whether an out-of-state MCA funder can use one against you.
A more complete ban covering consumer debts and debts under $5,000,000 in principal is pending. S2305 has passed the New York Senate twice (40-22 in March 2025 and 40-20 in May 2026), but its companion bill, A07545, is languishing in the Assembly Judiciary Committee. The Assembly memo concedes that in-state MCA businesses could still exploit the current rules.
Is a confession of judgment legal in Pennsylvania for business debts?
Yes. Commercial confessions are routine in Pennsylvania, because Pennsylvania Rule of Civil Procedure 2950 excludes only "an instrument executed by a natural person in connection with a consumer credit transaction." That exception followed the Supreme Court's 1972 decision in Swarb v. Lennox. So if you sign one with a merchant cash advance, the funder can confess judgment without a judge's permission by filing a complaint with the prothonotary, unless it is over 20 years old or the signed copy is not attached.
Pennsylvania gives businesses protections before execution, but not a ban. If the funder executes without giving thirty (30) days' prior notice, a hearing must be held within three business days. A single petition to strike or open the judgment can generally be filed within thirty (30) days of service under Pennsylvania Rule of Civil Procedure 2959, and if your evidence would require submission to a jury, the court must open the judgment. Learn what to do after you're served.
Is Congress trying to ban confessions of judgment?
No legislation is currently moving in Congress. Since 2018, the Small Business Lending Fairness Act, written to include "any advance of funds or sale or assignment of future income or receivables that may or may not be credit," has been introduced repeatedly. It passed the House 215-207 on May 13, 2021, as part of H.R. 2547, but died in the Senate Banking Committee. A govinfo search of current bill text for "confession of judgment" finds nothing.
Frequently Asked Questions
If I signed a confession of judgment before my state's ban, is it still good?
It depends on the language of the ban. In New York, the rule applies to any confession filed on or after August 30, 2019. So an out-of-state business's confession that was not filed before then cannot be filed in New York now. In California, judgments obtained or entered before January 1, 2023 are not affected by the new law. In Vermont, the law will apply if the contract is modified, amended, or restructured on or after July 1, 2027.
Does the consumer ban apply to a personal guaranty?
Probably not. The FTC rule and the Pennsylvania exception both apply to consumer credit transactions, which generally means debt for personal, family, or household purposes. A personal guaranty of a business debt generally does not fit that definition. This is general information only, so have someone look at the actual guaranty you signed.
What new laws should I be watching?
As of September 28, 2026, watch for New York's Assembly to act on S2305 and A07545, for Texas to require registration of sales-based financing providers by December 31, 2026, and for Vermont to ban confessions of judgment on July 1, 2027.