“Predatory lending.” It’s become an acceptable phrase in everyday language. Every city has them; short-term loan shops, making money off ultra-high interest rates that turn loans of hundreds of dollars into thousands of dollars paid off. Some make even more money when debtors go bust and here comes the repo man. It’s a system for pillaging the poor and desperate. It’s an industry. Wall Street loves it.
But what if there were a way to put predatory lending on steroids; to target, not poor people trying to meet a car payment or a medical bill, but business-people, with payrolls to meet or investment-bets on the future of their shop, invention or real estate agency? Once these five or six-figure borrowers are hooked, what if your lending system had a new industrial-strength tool to fillet those suckers of their worldly wealth as fast as lightning?
Wall Street financiers liked that idea so much, they fronted the prince of this particular kind of predation $120 million with which to make, not loans – at least you cannot call them that – to make “cash advances.” Last year David Glass’ companies booked “advances” worth $553 million. Chances are he’ll get it all back, with mega-interest and then some.
Here’s how he does it: Say, David Glass or one of his partners or employees says you owe him or her some money. They say that you missed a payment on a debt, which may, in point of fact, be true or not true at all. On the strength of the creditor’s say-so and one piece of paper, that creditor can empty your bank accounts and take everything you’ve got to repay his claim. Before the bank even tells you, your money’s all gone. No need for evidence or no trial, and the record shows you’ve got almost no chance of getting your money or property back.
It’s that piece of paper that’s David Glass, his partner Isaac Stern and now dozens of other cash advance lenders’ new nuclear weapon. It’s called a “Confession of Judgment,” and if you autograph one, you are signing away all the legal, moral and human rights you thought you had. Lots of people sign anyway.
Piles of paper mean nothing without a system to enforce them. That system exists, almost uniquely built into the bureaucracies, laws and even ancient customs of the state and city of New York. Since 2012, the county clerks, city marshals and all the record-keepers of the state court system have handled 25,000 cases based on Confessions of Judgment. That is close to 12,000 of them this year. Most, but not all, of them will be completely legal. Of course, no one would call them just.
Zachary R. Mider has been a reporter for Bloomberg News since 2006. He writes features for the news service, for Bloomberg Businessweek, and for Bloomberg Markets magazines. He also worked for The Providence Journal in Rhode Island. In 2015 he was awarded the Pulitzer prize for Explanatory Reporting “for a painstaking, clear and entertaining explanation of how so many U.S. corporations dodge taxes and why lawmakers and regulators have a hard time stopping them.”