It’s not news to any lender in Ohio that commercial borrowers don’t always repay their loans. Nor is it news that those borrowers sometimes try to hide or sell their assets before a lender can recover. But for over 200 years, Ohio’s lenders have had the right to an immediate judgment against those borrowers when it mattered most: while assets were disappearing.
That right comes from Ohio’s cognovit law, which allows lenders to obtain a quick judgment against delinquent commercial borrowers without notice. But last week, an Ohio state representative introduced a bill that, if passed, will ban and criminalize most cognovits. Fortunately, that bill—House Bill 67—is in its infancy giving Ohio’s lenders abundant time to oppose it.
Although cognovits are cost-efficient, their primary benefit is often speed. That speed is paramount when a borrower’s business is failing and its assets are at risk. Examples from our firm’s own practice are many.
Over the last few years, for example, several of our clients have experienced borrowers who tried to hide or sell their assets. One borrower sought to sell its manufacturing equipment to an out-of-state buyer shortly before we filed suit. Another hid small construction equipment in trailers to ship it offsite secretly. And one even tried to trade commercial restaurant equipment on Craigslist (which we quickly discovered).
In each case, we used remedies available only after judgment to recover assets before they could disappear. The speed afforded by cognovit law was a key to that success. Yet despite its benefits, that law is not without detractors, including some in the Ohio legislature.
Criticized but Constitutional
Cognovits have been a favorite target of some in the Ohio Legislature. During the 2015–2016 session, for example, several Ohio House members tried to legislate away the benefits of cognovits: i.e., quick and efficient judgments. Concerned that cognovits were “un-American” and took “away people’s constitutional rights and due process,” those members proposed House Bill 291.
House Bill 291 required Ohio’s lenders to give 30-days’ notice to past-due commercial borrowers before seeking cognovit judgment. It also gave borrowers the right to a post-judgment hearing to assert defenses to nonpayment. In the end, House Bill 291 rendered cognovits useless by taking away their primary benefits: speed and cost. Fortunately, that bill did not become law.
It’s worth noting that the House Bill 291 group’s concerns about cognovits weren’t exactly grounded in fact. Cognovits aren’t “un-American.” In fact, they came across the Atlantic Ocean with our forebearers. And Ohio itself has recognized cognovits for at least 207 years.
Likewise, cognovits are quite constitutional. In 1972, the United States Supreme Court reviewed Ohio’s cognovit law and concluded that “a cognovit clause is not, per se, violative of Fourteenth Amendment due process.”
Even so, one undeterred legislator from the House Bill 291 group proposed a bill last week whose purpose is to ban all cognovit judgments except those concerning a settlement.
Enter House Bill 67
Ohio House Bill 67 reconstructs Ohio cognovit law into two rules. First, cognovits are illegal under the bill unless they are part of a settlement. And second, those who confess judgment against a debtor are subject to six months in jail—unless confession arises from a settlement. But perhaps more troubling than the nearly total loss of cognovit benefits is the uncertainty that House Bill 67 creates about settlements. If the bill becomes law, that uncertainty will affect how Ohio’s banks and credit unions lend.
House Bill 67 criminalizes cognovits except those that come from a settlement. Settling a lawsuit is intuitive enough, but what about loan workouts? Is a forbearance agreement a settlement under House Bill 67? What about debt modifications? Consolidation of several existing commercial loans into one debt? Can a lender enforce a cognovit debt modification agreement without its attorney risking jail time? House Bill 67 doesn’t say.
Ohio’s lenders often need to move quickly—including our client whose collateral was being sold on Craigslist. No wonder—that lender’s collateral was fleeing the jurisdiction of Ohio’s courts.
Discovering a sale in progress is the time for speed, not delay. But speed is impossible under House Bill 67. Injunctions and attachment are no substitutes. They are slower and costlier. Under the bill, Ohio’s lenders are without their best tool: cognovit judgment.
Like House Bill 291 before it, House Bill 67 may not pass. It is the latest in a long line of unsuccessful challenges to cognovits in Ohio. Even so, we strongly recommend that Ohio lenders contact their state legislators immediately to oppose House Bill 67.
 Crain’s Cleveland Business, State bill is concern for banks, March 6, 2016.
 131st Ohio General Assembly, House Bill 291.
 D. H. Overmyer Co. v. Frick Co., 405 U.S.174, 176, 92 S.Ct. 775, 31 L.2d 124 (1972).
 Id. at 178.
 Id. at 187.
 132nd Ohio General Assembly, House Bill 67, Proposed R.C. 2323.12; R.C. 2929.24(A)(1).