February 24, 2014

Illinois: Stop the Unregulated March of the Lawsuit Lenders

by Lisa A. Rickard
President, U.S. Chamber Institute for Legal Reform

“Lawsuit Loan Sharks.”

That’s the term coined by the Chicago Tribune editorial board for the headline of its 2010 editorial urging the Illinois General Assembly to reject legislation being pushed by the burgeoning lawsuit lending industry.

As the editorial pointed out, that legislation would’ve given the industry “carte blanche to pocket a huge share of judgments won by individual plaintiffs with only a pretense of regulation.”

If you’re not familiar with lawsuit lending, it’s the industry that brings you so many late night TV commercials touting their wares: “Up front” cash for plaintiffs to cover immediate living or medical expenses for the duration of his or her lawsuit. 

The plaintiff then repays the loan plus interest to the lender out of any settlement or judgment award resulting from the case. In some cases, the lawsuit lenders charge as much as 150% interest, because they are operating below the radar of state regulations.

The lenders claim they’re not providing loans, but rather “non-recourse funding”, because the money is only paid back if the consumer wins his or her lawsuit. This claim is weakened, however, by the fact that the industry’s advertisements regularly use the terms “lawsuit loans” and “lawsuit lender.”

Thankfully, the Illinois House listened to the Tribune and soundly defeated the 2010 bill. The lawsuit lenders are back, however, with a new bill (SB 3169) that would set their nominal interest rates at an astounding 72%, which will stick some loan recipients with an annual APR of more than 100%.

Consumer lending laws are designed to protect against exactly the types of abuses involved in lawsuit lending. So, why should the lawsuit lending industry be exempt from them?

The list of victims of this practice is growing: 

  • In an video interview posted at LawsuitLendingTruth.com, one Illinois plaintiffs’ attorney, Frank Avila, tells the story of a former client who took out a $50,000 lawsuit loan, only to find he owed close to one million dollars after the lawsuit settled.
  • According to this Detroit Free-Press article, six female plaintiffs (who were sexually assaulted by Michigan prison guards) took out a $635,000 lawsuit loan; they then owed $3.1 million back to the lending company.
  • The 2012 New York Law Journal reported that one Brooklyn man sued his law firm after he received only $11 from a $15,000 lawsuit settlement. Lawsuit lending companies, the Law Journal reported, received “the bulk of his funds.”

It’s stories like these that are causing a diverse coalition — including a growing number of plaintiffs’ attorneys, the National Black Caucus of State Legislators and the National Hispanic Caucus of State Legislators — to call for the lawsuit lenders to be brought into alignment with other consumer lenders operating in their respective states.

The Illinois General Assembly said “No” to the lawsuit lending industry once before. They can again protect Illinois consumers by opposing the industry’s latest proposal — and then working to provide greater oversight and reasonable regulation of the lawsuit lenders.

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