Confession of Judgment in MCA: What Every Broker Needs to Know in 2026

What Is a Confession of Judgment?

A confession of judgment (COJ) — sometimes called a cognovit note or warrant of attorney — is a contractual clause that allows a creditor to obtain a court judgment against a debtor without first filing a lawsuit or giving the debtor any advance notice.

In plain English: a merchant signs a COJ as part of their MCA contract. If the merchant defaults, the funder can immediately have a judgment entered against them in court — skipping the entire litigation process — and begin collecting on assets the same day.

For MCA funders, the COJ is an enforcement tool. For merchants, it's one of the most consequential provisions in any financial contract they'll ever sign. And for brokers, it's a topic you need to understand deeply — because mishandling it can damage merchant relationships, trigger liability, and end careers.

Why COJ Is So Prevalent in MCA

Traditional lenders rely on collateral (real estate, equipment) and personal guarantees enforced through standard litigation. MCA funders operate differently. They're purchasing future receivables — not making loans — and the deals are typically small, fast, and unsecured. Litigation is slow and expensive relative to the deal size.

COJs solve this problem. A funder who can enter judgment instantly, freeze bank accounts, and attach assets the same week a merchant defaults has a meaningful enforcement advantage. That speed is precisely what makes MCA default rates manageable for funders despite the elevated risk profile of their merchant base.

The tradeoff is obvious: merchants who sign COJs are giving up one of their most fundamental legal rights — the right to be heard before a judgment is entered against them.

How the COJ Process Works in Practice

Here's the typical enforcement sequence when an MCA funder exercises a COJ:

• Triggering event: The merchant misses ACH payments, closes their bank account, or violates another term of the MCA agreement (often including things like taking additional funding without consent, or failing to maintain minimum daily balances).
• Confession filed: The funder — or more commonly, their attorney — files the signed COJ with the designated court. No summons is served on the merchant. No hearing is scheduled.
• Judgment entered: The court clerk enters judgment automatically, often within 24-48 hours of filing. The judgment is for the full remaining balance, plus fees and attorney costs.
• Enforcement begins: With a valid judgment in hand, the funder can immediately issue a bank levy, garnish business accounts, or place liens on property — in many cases before the merchant even knows a judgment exists.
• Merchant discovers the judgment: Often this happens when their bank account is frozen or a payment bounces. At that point, reversing the judgment requires filing a motion to vacate — an uphill legal battle that takes weeks or months.

The entire process, from default to frozen account, can take less than a week. That's the power — and the danger — of the COJ.

Which States Allow Confession of Judgment?

COJ enforceability is entirely a matter of state law, and the landscape varies significantly.

States That Generally Permit COJ

As of 2026, the following states allow confession of judgment clauses and are commonly used as COJ-filing venues by MCA funders:

• Pennsylvania — The most common COJ venue in MCA. Pennsylvania courts have deep experience with cognovit practice, and funders often include Pennsylvania choice-of-law clauses specifically to preserve COJ rights.
• Virginia — Permits COJ with specific form requirements. Frequently used for larger deals.
• Ohio — Allows COJ via the cognovit note statute, though courts have applied some procedural guardrails in recent years.
• Maryland — Permissive COJ state, frequently specified in MCA agreements alongside Pennsylvania.
• Illinois — Allows warrant of attorney provisions in commercial contracts.

States That Prohibit or Heavily Restrict COJ

• New York — NY banned COJ for out-of-state defendants in 2019 following high-profile reporting about MCA funders using NY courts to freeze accounts of merchants across the country. NY merchants can still have COJs filed against them in NY courts by NY-based parties, but out-of-state filing venues can no longer enforce COJs against NY defendants.
• California — Prohibits confession of judgment clauses entirely in consumer and most commercial contracts.
• Florida — Largely prohibits COJ in commercial lending contexts.
• Texas — Does not recognize cognovit notes.
• Michigan, Wisconsin, and most Western states — Generally prohibit or do not recognize COJ.

For merchants operating in COJ-restricted states, the protection is only partial. A funder whose MCA agreement specifies Pennsylvania as the venue can often still file and enter judgment there — and then attempt to domesticate that Pennsylvania judgment in the merchant's home state. Whether that domestication succeeds depends on the home state's enforcement rules, but it's a step many funders take routinely.

The New York 2019 Reform: What Changed and What Didn't

In August 2019, New York amended its CPLR (Civil Practice Law and Rules) to ban COJ filings against out-of-state defendants. This was a direct response to investigative journalism revealing that MCA funders were using New York courts as a centralized COJ factory — filing thousands of judgments against merchants in Texas, Florida, California, and elsewhere, then using those judgments to freeze bank accounts nationwide.

The reform was significant, but it didn't end COJ practice in MCA. It pushed funders to shift their COJ filings to Pennsylvania, Virginia, and other permissive states, and it accelerated the adoption of more aggressive ACH control and split-funding collection methods as backup enforcement tools.

What the 2019 reform demonstrated — and what matters for brokers today — is that the regulatory environment around COJ is unstable. Several additional states have proposed restrictions since 2019, and federal legislation has been introduced (though not passed) that would impose nationwide limits.

What Brokers Need to Understand

If you're submitting deals to funders, COJ is a topic you should know cold. Here's why it matters to your business specifically:

1. You May Have Disclosure Obligations

Several states with MCA disclosure laws — including California (SB 1235), New York, Utah, Virginia, Georgia, and Florida — require that certain material contract terms be disclosed to merchants before signing. While COJ is not always explicitly listed in disclosure mandates, it arguably qualifies as a material term that sophisticated brokers should be surfacing proactively.

In California especially, brokers who assist in placing MCA products (acting as commercial finance brokers under the CFLL) have a duty not to misrepresent or omit material facts. Failing to flag a COJ clause to a California merchant could expose you to complaints and potential license action.

2. Commission Clawbacks Become More Likely After COJ Enforcement

When a merchant defaults badly enough that a funder exercises a COJ, the deal has gone south in the worst possible way. Many funder ISO agreements include clawback provisions tied to early default — often within 90-180 days of funding. A merchant whose account gets frozen via COJ one month after funding is almost certain to trigger a clawback on your commission.

Understanding which funders have aggressive COJ policies — and which prefer workout arrangements — is part of evaluating your funder panel's quality, not just their rates.

3. Merchants Will Hold You Responsible

Merchants rarely read MCA contracts in full. When their bank account gets frozen unexpectedly, they often call the broker first. If you didn't explain what COJ means, expect to lose that relationship — and potentially hear from their attorney. Brokers who make a practice of walking merchants through key contract provisions, including COJ, protect themselves and earn lasting loyalty.

4. Choosing Funder Partners Wisely

Not all funders use COJ aggressively. Some reserve it for clear fraud cases or extreme non-payment. Others file at the first missed payment. When building your funder panel, ask directly: What is your default and collections process? Under what circumstances do you file a COJ?

A funder with a transparent, measured collections policy is lower risk to your book than one that weaponizes COJ against merchants who are simply experiencing a cash flow dip.

How to Explain COJ to Merchants

Most merchants will never default, and the COJ in their contract will never be exercised. But they deserve to know it exists. Here's a practical way to frame it:

"This agreement includes a confession of judgment clause. That means if you miss payments and don't resolve it with the funder, they have the right to go to court and get a judgment against your business without having to sue you first. This could result in your bank account being frozen. It's a standard clause in many MCA contracts, but I want you to be aware of it. The best protection is simple: if you hit a rough patch, call me immediately — most funders would rather work out a payment arrangement than go through enforcement."

This framing is honest, non-alarmist, and positions you as an advocate. It also creates a behavior pattern (merchants calling you when they're struggling) that gives you a chance to negotiate a workout before things escalate.

Regulatory Trends: Where COJ Is Heading in 2026

COJ reform remains an active legislative issue across multiple states. Several trends are worth tracking:

• State disclosure law expansions: As more states adopt TILA-style disclosure mandates for commercial finance, pressure to include COJ in mandatory disclosures is growing. Brokers in regulated states should expect this to become a formal requirement within the next 1-2 legislative cycles.
• FTC scrutiny: The Federal Trade Commission has signaled interest in abusive collection practices in the alternative finance space. COJ is on their radar, particularly as applied to small businesses that function more like consumers.
• Funder self-regulation: Several industry associations, including the Small Business Finance Association (SBFA), have published best-practice guidelines that recommend COJ be exercised only after good-faith workout efforts have failed. Funders seeking to demonstrate regulatory goodwill are increasingly adopting these standards.
• Pennsylvania legislative activity: Pennsylvania, as the de facto COJ capital of MCA, has seen recurring reform proposals. None have passed as of mid-2026, but the political environment is shifting as small business advocacy groups become more organized.

What to Ask Funders About Their COJ Practices

When evaluating a new funder relationship, add these questions to your vetting process:

• Does your MCA agreement include a confession of judgment clause?
• In which state do you typically file COJs?
• At what point in the default process do you typically file — first missed payment, or after a defined cure period?
• Do you attempt a workout or modification before filing?
• Will you share your standard merchant agreement so I can review it before submitting deals?

Funders who are evasive about these questions are telling you something important about how they operate.

Practical Takeaway

Confession of judgment is one of the most powerful — and most misunderstood — tools in the MCA contract toolkit. As a broker, you don't control what your funders put in their agreements. But you do control which funders you work with, what you disclose to merchants, and how you respond when deals go sideways.

The brokers who build durable books of business are the ones who treat COJ conversations as a feature of the job, not an awkward topic to avoid. Merchants who feel informed and protected refer other merchants. Merchants who feel blindsided leave reviews, file complaints, and occasionally hire attorneys.

As state regulation continues to evolve and federal oversight intensifies, brokers who already understand the COJ landscape will be positioned ahead of compliance requirements — not scrambling to catch up. Add it to your standard merchant conversation, vet your funders' enforcement practices, and document your disclosures. That's how you build a business that lasts.