BATON ROUGE – A bill that would place limits on the amount of interest companies specializing in legal loans that are offered to plaintiffs before settlements are final has passed the State Senate 39-1.
Dan Claitor (R–Baton Rouge), who sponsored the bill, said the bill is pretty straightforward.
“It’s not eliminating the loans, it’s not denying them the opportunity to make a profit, it is just putting a cap on it just like everything else,” he said.
The bill would bring interest rates that lawsuit lenders are allowed to charge in line with that of payday lenders by capping them at 35 percent.
Melissa Landry, executive director of Louisiana Lawsuit Abuse Watch, called the loans predatory and said consumers who take them out often do not realize they are going to be charged exorbitant interest rates.
“They target people who are in these desperate financial situations and give them loans with contracts that include all kinds of fees and interest rates and that are very difficult to read and understand for people who are even knowledgeable about these type of things,” she said.
“Often they compound their interest rates monthly. So they end up with an annual interest rate that is sometimes as high as 150 percent.”
Landry said the fortunate ones who take out these high interest rate loans end up with a small settlement or nothing at all, but there are others who can actually find themselves indebted to the lender following the resolution of their claim.
“If you are not fortunate what has happened for some people is that their case can settle, it takes a very, very long to resolve their case, and they can end up actually owing the lender money,” she said.
“They can end up owing more than they were actually awarded in the lawsuit. So they are upside down.”
The prospect of ending up with no settlement, or only a very small settlement, also often leads a plaintiff to not accepting what would otherwise be an agreeable settlement, according to Claitor.
“Then you have a client who has an unreasonable expectation of what they should be able to get because they have already gotten the money from the late night TV loan guys and created an environment where you are not really going to be able to resolve it for a fair amount of money,” he said.
Claitor said the result is that more cases are brought to trial than need to be.
“You end up trying the case and getting less than the demand that was reasonable and the client gets less money than he ever was going to get,” he said.
“The court loses a day or two or three or whatever the case may be. I am not saying it is a frivolous case or it makes people try frivolous cases, it just makes people try cases that don’t need to be tried. So everybody sort of loses on that.”
Although SB166 passed the Senate overwhelmingly, it has more opposition in the Commerce Committee where it passed with only a 4-2 vote.
Sen. Danny Martiny (R–Baton Rouge) provided the main opposition to the bill and recorded the only "no" vote on the floor.
“Sen. Martiny was making the argument ‘you know it’s a free market you really shouldn’t try to impede these things and competition and whatnot will take care of everything,’” Claitor said.
“I said ‘if we are going to do that why don’t we revoke all the regulatory schemes that we have for banks and the market will take care of that?’”
Martiny attempted to pass an amendment on the Senate floor that would have rewritten much of the bill and provided debtors with the right to cancel a contract within five days of signing it and that under no circumstances would they have to pay more than the amount received in a settlement or damages. The amendment narrowly failed by a vote of 19-15.
Claitor said although he is emboldened by the Senate’s passage of the bill he realizes it still may face tough opposition in the House.
“When you have people invested in a multi-billion dollar industry buying up lobbyists where they can and where it’s available it’s not that easy,” he said. “Billionaires, not millionaires, are going to come and fight it. Their main resource is money, not reason.”
The bill has not yet been assigned to a House committee.
Eleven other states are currently considering similar legislation.