Regulate lawsuit lenders
Published: February 14, 2012 at 6:51 pm
Lawsuit lenders would prefer to remain beyond the reach of Arizona’s consumer protection regulations. An important bill now pending in the House would appropriately subject lawsuit loans to the same regulatory limits that are imposed on other consumer loans, and, not surprisingly, lawsuit lenders are fighting tooth and nail to kill it.
After striking out in eight state legislatures last year as they sought legislation to actually legitimize and strengthen their predatory business model, lawsuit loan industry lobbyists in Phoenix are now playing defense against HB2837, sponsored by Rep. Kimberly Yee and slated for a hearing Wednesday before the House Commerce Committee.
Lawmakers and every other Arizonan with a television has by now been bombarded by various lawsuit lender advertisements, slick come-ons that promise “quick cash now” while borrowers wait on the outcomes of their pending lawsuits. What the fast-talking ads don’t spell out are the sometimes usurious interest rates these lawsuit lenders charge, rates a New York judge recently called “unconscionable.”
In that pending New York case, a lawsuit lender is reportedly demanding $116,000 to repay an original loan of $4,000 made to a man who successfully sued New York City in a police brutality case, according to court documents. With compounding interest that can exceed 100 percent per year and other hidden fees, lawsuit loan balances like this one can quickly explode and leave borrowers literally worse off than they would have been if they’d lost their lawsuits.
A case in point is that of a woman who’d taken out a lawsuit loan as her attorney pursued a settlement on her behalf in a sexual harassment claim in North Carolina. He negotiated a $1 million settlement only to have his client refuse the offer because she had calculated she needed 20 percent more than that just to pay off both her loan and her attorney. The case eventually went to trial and she lost.
So, in addition to its lack of transparency and the obvious threat it poses to vulnerable borrowers, lawsuit lending also plainly undermines the adversarial system in our civil courts, wherein all parties in a case are supposed to have a personal stake in seeking justice, not merely a financial payout. And despite denials from the lawsuit loan industry, common sense tells us that its loans can only encourage more job-killing, growth-sapping lawsuits while our economy still struggles and personal bankruptcies are again on the rise.
Policy makers of every party and in every state have clear interests in protecting vulnerable consumers and otherwise promoting economic growth and job creation. In Arizona, where the housing bust has taken an unusually harsh toll on jobs and growth, it’s hard to believe that lawmakers would not line up in bipartisan fashion to support Rep. Yee’s bill.
But the major lobbying push that lawsuit lenders are making against this bill has turned common sense on its head and, unfortunately, made things too close to call in Arizona. We hope that from the Commerce Committee hearing, legislators will gain a better understanding of what is at stake, especially since supporters of Rep. Yee’s bill have history solidly on their side.
The indisputable fact is that laws and legal standards had, for more than 2,000 years, proscribed third-party financing of litigation – from the ancient Greeks and Romans to Western lawmakers and jurists throughout much of the 20th century.
Will a well-funded lobbying blitz by those who seek riches at the expense of the poor convince Arizona lawmakers to ignore history? We certainly hope not. HB 2837 subjects lawsuit loans to appropriate regulation, and it ultimately deserves bipartisan, bicameral support.
– Tiger Joyce is president of the American Tort Reform Association in Washington, D.C.