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March 10, 2011

New York Times Details Explosion of Lawsuit Lending Bills

The New York Times has a story in Thursday’s paper about attempts in multiple states to expand the availability of lawsuit lending.

For those of you not familiar with the practice of lawsuit lending, the article provides a useful summary:

About a dozen large lawsuit lending companies, and many smaller ones, lend plaintiffs about $100 million a year, generally a few thousand dollars at a time, to cover housing, medical care and other expenses. The loans are repaid from winnings, with costs that can exceed 100 percent a year.

Yes you read that correctly. Some of these loans have yearly interest rates and fees as high as 100%! In that respect, lawsuit lending is no different than other types of unscrupulous lending practices, such as payday lending, that are opposed by the vast majority of Americans.

So how does the industry get around this PR problem? As Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, explains in the New York Timesarticle, lawsuit lenders and their allies in state legislatures are proposing measures that are sold to the public as “regulating” the industry. Yet in practice, many of these state bills would EXEMPT lawsuit lenders from state fair lending and consumer protection laws.

It’s clear that lawsuit lenders are the main forces behind these “consumer protection” bills. As the sponsor of one lawsuit lending bill told the Times, “Most of what [a leading lawsuit lending company] proposed is contained in the bill.”

I encourage everyone to read the whole article as well as an earlier New York Times article that documents many of the abuses associated with lawsuit lending. Because when you hear about legislation that purports to “regulate” lawsuit lending, it may do exactly the opposite.

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