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May 7, 2013

Will Colorado court rein in lawsuit loan sharks?

Today, a Colorado appeals court heard arguments in an important case testing whether Colorado law places any limits on out-of-control lawsuit lenders. Colorado courts are among the first in the country to decide whether consumer lending laws apply equally to lawsuit lenders, or if – as the lawsuit loan sharks have argued – they have unfettered freedom to exploit borrowers with interest rates as high as 100% or more. The case is Oasis Legal Finance Group, et al. v. Suthers.

As the U.S. Chamber’s Institute for Legal Reform has highlighted, the controversial practice of “lawsuit lending,” where a lender offers money to an individual plaintiff cover living expenses at sky-high interest rates to be repaid from the winnings, has met increasing resistance at the state level. The meteoric rise in the practice is raising new and serious concerns about lending abuse. 

Take for instance Brooklyn resident Elwin Frances who borrowed $27,000 from lenders Case Cash and Law Bucks in connection with a trip-and-fall case.  After settling his case for $150,000, the lenders took almost two thirds, and after lawyers’ fees he was left with a paltry $111.  Frances sued his lawyers for failing to warn him that the loan would consume most of his award, and lost.

Or ask Oklahoma native Jeff Hall, who suffered extensive injuries after falling off a truck onto a fork lift and filing a workers’ comp claim.  After taking out two loans from Oasis Legal Finance for a combined $6,600 during the litigation, he ultimately had to repay roughly $13,500, which he did in spite of declaring bankruptcy and losing his home.

Today’s court argument arises out of a preemptive lawsuit brought by Oasis Legal and LawCash, two of the country’s biggest lawsuit lenders, to attempt to block the Colorado Attorney General from regulating the company under the state’s consumer lending laws, known as the “Uniform Consumer Credit Code” (UCCC). A state judge ruled against the lawsuit lenders, who appealed. The U.S. Chamber’s litigation arm, the National Chamber Litigation Center, filed a “friend-of-the-court” brief in support of Colorado’s attorney general.

The Litigation Center’s brief dissects the lawsuit lenders’ bogus claim that they’re not really “loaning” money to would-be plaintiffs, and therefore the companies should get a pass on regulation under consumer lending laws. Despite the lawsuit lenders’ creative labeling for their transactions – like “nonrecourse purchase of litigation proceeds” – at the end of the day, they are loaning money at exorbitant interest rates. Lawsuit lenders’ practice of disguising exorbitant interest rates is precisely the type of conduct the UCCC is designed to prevent. As the New York Times recently explained, that’s why consumer rights groups also oppose lawsuit lending.

Regulating lawsuit lenders under Colorado consumer lending laws is not only the right legal conclusion; it is also the right policy. Regulation of this industry under the UCCC will help to curb the myriad ills caused by lawsuit lending, and will bring the practice into conformity with other regulated consumer lending activity. 

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