The Business Council of Alabama’s 2014 Legislative Agenda includes a position on lawsuit loans that have become a major issue for the U.S. Chamber of Commerce’s Institute for Legal Reform that seeks openness and transparency in a little-known but potentially abusive part of the legal landscape.
The U.S. Chamber of Commerce’s Institute for Legal Reform seeks regulation of generally unregulated lawsuit lending that victimizes plaintiffs who borrow money at usury rates of up to 200 percent while their lawsuits are pending. “Lawsuit lending should be regulated like any other consumer financial product,” the Chamber’s ILR said.
Lawsuit lending regulation is part of the BCA’s 2014 Legislative Agenda that was approved Dec. 6 by the BCA Board of Directors at the annual meeting in Birmingham. The policy statement on judicial and legal reform states that the BCA will support efforts to prohibit third-party litigation financing or efforts to provide meaningful regulation in order to protect the interests of consumers and the public.
The ILR’s consumer lawsuit lending website at www.LawsuitLendingTruth.com has information about the ILR’s strategy to disrupt the lawsuit lending industry. The website will post ILR advocacy material and general information, report on state legislative developments, list media coverage, and post videos featuring stories of lawsuit lending abuse. The website also will allow consumers to share their stories of lawsuit lending abuse, the ILR said.
Several bills have been introduced in state legislatures to make lawsuit lenders adhere to existing state consumer lending laws. Oklahoma passed legislation this year and Colorado requires lawsuit lenders to register under the state’s consumer credit laws.
Lawsuit lending, or financing, is a practice that provides “up-front” cash to plaintiffs to cover immediate living or medical expenses during litigation. The ILR said the loans typically have sky-high interest rates, from between 60 percent and as much as 200 percent, that can leave borrowers with little to no recovery from a settlement. In addition, lawsuit lending prolongs litigation and distorts the fundamental nature of the civil justice system, the ILR said.
“Unfortunately, lawsuit lending is far from harmless,” the ILR said. “It hurts consumers while also undermining the integrity of the justice system.”
The caveat is if you don’t recover in a lawsuit, the loan doesn’t have to be repaid. “In fact, the lawsuit lending industry goes to great lengths to tell the public that consumer lawsuit loans are not really loans at all but are instead ‘nonrecourse financing’,” a rationale that manages to avoid regulation in many states, the ILR said.
The ILR said the New York Law Journal reported that a Brooklyn man borrowed $27,000 from a lawsuit lender for his slip-and-fall lawsuit. His case was settled five years later, but the lender demanded $100,000, or two-thirds of the $150,000 settlement, and more than three times the amount of the original loan, the ILR said. The plaintiff’s lawyers also got an additional one-third of the settlement, leaving the plaintiff with just $111.
The ILR believes lawsuit lending alters a plaintiff’s decision-making process, potentially causing him or her to reject a reasonable settlement offer and take a chance for a higher verdict to repay the high-interest loan, jeopardize any chance of recovery because litigation could result in a lower-than-expected verdict or a judgment in favor of the defendant. It also increases costs for defendants, who are forced to endure prolonged and costlier litigation, the ILR said.
By inserting third parties into a case, lawsuit lending compromises the interests of litigants and creates conflicts of interests for plaintiffs’ lawyers, the ILR said.
-Dana Beyerle