Confession of Judgment | MCA Glossary

Definition

A legal provision in which a borrower agrees in advance to allow a lender to obtain a court judgment against them without notice or a trial if the borrower defaults.

Explanation

A confession of judgment (COJ) — sometimes called a cognovit note — is a clause in some MCA agreements that authorizes the funder's attorney to file a legal judgment against the borrower immediately upon claimed default, without the court hearing from the borrower first. The borrower essentially pre-authorizes the judgment by signing the original agreement. COJs are most common in MCA agreements governed by New York law, where they remain legal for commercial transactions above $50,000. Many states have banned COJs entirely for commercial agreements. When a funder uses a COJ, they can obtain a court-entered judgment within days of declaring a default — allowing them to immediately pursue bank account levies, asset liens, and garnishment without the typical 30 to 90 day litigation timeline. The COJ was banned from consumer lending decades ago due to its one-sidedness. In commercial MCA lending, it remains controversial — it was the subject of a major investigative report in 2018 that led to federal and state scrutiny. Several major MCA funders have voluntarily stopped using COJs in response to regulatory pressure, but many others continue to include them.

Example

A business owner in New Jersey signs an MCA agreement with a COJ clause under New York law. When the business misses three consecutive daily payments, the funder's attorney files a confession of judgment in New York court without notifying the business owner. A judgment is entered, and the funder begins levying the business bank account within a week.

Why It Matters

A COJ in your MCA agreement means you have waived your right to contest a default claim before a judgment is entered against you. This dramatically reduces your ability to dispute errors or negotiate resolution time. Before signing any MCA agreement, specifically ask whether it contains a COJ provision and under which state's law the agreement is governed. If a COJ is present, consult an attorney before signing.

Frequently asked questions

Can I negotiate the removal of a confession of judgment clause?

Some funders will remove or modify a COJ provision upon request, particularly for larger, well-qualified borrowers who have negotiating leverage. Others consider COJ provisions non-negotiable. If a funder is unwilling to remove the COJ, you must decide whether the advance terms justify accepting the reduced legal protection. In general, avoid COJ-containing agreements when alternatives are available. A COJ is one of the most borrower-adverse provisions in MCA contracting.