Tennessee Enacts Law to Rein in Lawsuit Lending Abuses

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

Following Oklahoma last year, Tennessee yesterday became the second state nationally to enact a law to rein in lawsuit lending abuses.

Lawsuit lending is a financial practice that provides “up-front” cash to individual plaintiffs to cover immediate living or medical expenses during litigation. The money is lent on a non-recourse basis, so if the plaintiff loses the case, he or she is not obligated to repay the loan. However, these loans are typically attached to sky-high interest rates – as much as 200 percent – that leave borrowers with little to no recovery from their lawsuit once the loan is repaid.

Governor Bill Haslam signed Tennessee’s lawsuit lending regulation into law yesterday. The law includes registration and bonding requirements for lawsuit lenders, a cap on interest rates that they can charge, and enforcement by the state Attorney General. In short, the law requires lawsuit lenders to play by the same rules as others who provide loans in the state.

In passing this law, Tennessee has enacted strong safeguards around a practice that shortchanges injured consumers, increases litigation costs, and crowds court dockets. We hope that other states will follow Tennessee’s lead, as several others are considering.

Currently, Louisiana, Missouri, South Carolina, and Rhode Island are considering lawsuit lending regulation bills.