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May 23, 2013

Landmark Ruling: Colorado Court Says Lawsuit Lenders Cannot Duck Lending Laws

Today, the Colorado Court of Appeals ruled unanimously that lawsuit lenders cannot duck the state’s consumer lending laws. The National Chamber Litigation Center filed an amicus curiae (“friend of the court”) brief in the case along with the Denver Metro Chamber.

Consumer lawsuit lenders seek out plaintiffs and offer them “up front” cash to cover immediate living or medical expenses while they are engaged in a lawsuit. These loans, which are provided at sky-high interest rates of often over 100%, are then paid back to the lender from any settlement or judgment award the plaintiff may later receive. 

Lawsuit lending is a serious problem: it diminishes recoveries for injured consumers, increases litigation costs, and crowds court dockets. In addition, if left unchecked, lawsuit lending threatens to erode client control over lawsuits and diminish the professional independence of attorneys. 

The Colorado ruling puts some much need parameters around the industry in one of the first test cases nationally of whether lawsuit lending should be regulated under the “Uniform Consumer Credit Code” or UCCC. Two lenders initiated the case by preemptively suing Colorado Attorney General John Suthers because state law would not have allowed them to charge exorbitant interest rates. 

Meanwhile, as cited earlier today, Oklahoma is poised to become the first state nationally to pass a law to curb lawsuit lending abuses by bringing lenders existing state law. Oklahoma SB 1016 would bring lawsuit lenders under the UCCC so that they must simply play by the same rules as others that loan money in the state. That bill is now headed to Governor Mary Fallin for her signature. 

The lawsuit lending industry stands to suffer the one-two punch of a landmark court room setback in Colorado and a legislative defeat in Oklahoma inside of a week. This may be just the beginning, however, as numerous states nationwide eye reining in the abusive practice.

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