Rep. Chabot Issues Statement at Hearing on Confessions of Judgment

Targeted News Service |

WASHINGTON, -- Rep. Steve Chabot, R-Ohio, ranking Republican member of the House Small Business Committee, issued the following opening statement at a hearing entitled "Crushed by Confessions of Judgment: The Small Business Story":

"As our economy continues to roar ahead with record unemployment rates and near record small business optimism, our nation's smallest firms still face obstacles when it comes to financing their projects and growth. With an onslaught of new technologies, lenders are reaching small businesses, entrepreneurs, and startups in novel ways.

"Despite new technological platforms, the contract between two parties is still where the rubber meets the road. Often, these contracts contain a legal provision that we will discuss today. Although confessions of judgment have been around for ages, the provision has received increased attention recently at the federal and state level due to some abuses. Specifically, the provision allows a party to waive his or her due process rights, bypass litigation, and move immediately towards a monetary judgement.

"At the federal level, the Federal Trade Commission is one of the nation's agencies that oversees consumer protection laws. In 1984, the FTC determined that the use of confessions of judgments should be prohibited in all consumer contracts. Although the FTC, through regulation, banned confessions of judgment in consumer contracts, they elected not to include business contracts in that prohibition.

"States, on the other hand, have created a patchwork of rules on how to treat confessions of judgment, from an outright ban in some states to allowing them in others. Many of the states that do allow them, such as Ohio and Pennsylvania, also require certain guardrails and safeguards to protect parties involved in the transaction. For example, in Ohio, warning language must appear in the contract in bold and "distinctive" lettering.

"These safeguards help reduce the chances of small business owners not being aware of the provision and or not understanding the provision, which often leads towards abusive practices. Most recently, just last week, the state of New York voted to ban all out-of-state confessions of judgment.

"I look forward to hearing from our witnesses about the history of this provision and how it has been utilized in recent years. Additionally, I am interested in hearing how states have regulated this legal tool. As we continue to work to create an environment that allows small businesses to grow, create jobs, and flourish, it is important to look at how states address various issues.

"I want to thank the witnesses for joining us today. Thank you, Madam Chairwoman. I yield back."

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