BATON ROUGE – A bill making its way through the Louisiana legislature that would regulate lawsuit lending practices has one advocacy group calling the proposed legislation a “bill of goods.”
But its sponsor, Sen. Dan “Blade” Morrish, (R-Jennings), says it's a good start, one which would place regulations on so-called “lawsuit loans" - upfront cash payments to plaintiffs in lawsuits in exchange for a slice of their settlement including interest rates that are sometimes as high as 150 percent.
Melissa Landry, executive director of Louisiana Lawsuit Abuse Watch, said there are many cases in which those who receive the funding end up owing much more than the receive and that the industry-supported bill, SB 299, would do nothing to address that problem.
"It will institutionalize the industry’s abusive lawsuit lending practices and give them a green light to continue charging vulnerable consumers exorbitant interest rates," Landry said.
In a phone interview, Morrish defended the transactions, calling them "civil justice funding," rather than what they are commonly known as - lawsuit lending.
“I believe these are unique products and they are not loans," he said. "There is no collateral, there is no credit check or employment verification."
Morrish said if the legislature held lawsuit lenders to the same regulations as other lenders in the state the companies would no longer be able to function.
“If we were to say these are loans, which some states have done, and put them under the consumer lending laws, these companies would not operate in Louisiana," he said. "They can’t make it one of those 36 percent (interest) max because they have such a high risk."
For those who are in need of immediate funds while awaiting a settlement, Morrish said the inability to access such funding could be disastrous.
"Those who have suits filed and don’t have the financial resources to pay their mortgage, rent, car note or medical bills are forced in some instances to maybe sell their car and then can’t get to work to get through until their lawsuit settles," he said.
Landry said the assertion that the funding is not a loan is matter of semantics.
“Simply put, these are loans and they should be regulated accordingly," she said. "Every other type of loan is regulated in Louisiana—from bank loans, to car loans, credit cards and pawnshop loans. These should be, too."
In fact, the bill goes as far as to exempt the transactions from Louisiana consumer credit law, which Landry said the bill plays into the hands of the lenders.
“SB 299 is not a regulation bill that will protect consumers—it is an exemption bill, created by the lenders, which will actually legitimize lawsuit lending and explicitly exempt them from the same banking rules and regulations that govern traditional lending companies,” she said.
Morrish disagrees saying the bill would regulate a market that has been operating in the state for at least 15 years without any regulation whatsoever.
“You can see the penalties and you can see that they have to follow the Unfair Trade Practices Act which is administered by the attorney general’s office," he said. "This is way more regulation than they have ever had before."
The proposed law would require currently unregulated lawsuit lenders to register with the Secretary of State every two years, present to the consumer a completed contract at the time of their signing, present in bold print the right of the consumer to rescind the contract within five days of its signing and disclose all costs and charge to the consumer on the front page of the contract.
In addition, the proposal would disallow lawsuit lending companies from providing commissions, provide false advertisements of misleading information to consumers, provide funding on a claim if another civil justice funding company has already made a payment to the litigant or pay court costs or attorney’s fees.
Landry said the provisions in the bill would do little to change current practice.
“To be fair, SB 299 would require specific disclosures spelling out terms of the loans," she said. "But those consumer protections amount to nothing more than window dressing. In fact, most of the ‘new’ disclosure requirements included in the proposed legislation are already considered standard business practice throughout the lending industry."
Morrish said in the end some regulation is better than nothing at all.
“If you hate this industry pass the bill because they are unregulated," he said. "start somewhere. File a bill that says they are illegal or pass this bill to say there is some regulation."
A similar measure passed the Senate last year that included caps on interest rates, but stalled in a House committee.
The bill passed the Senate in a 27-11 vote on and unanimously passed the House Committee on Commerce unanimously. It has not yet been scheduled for a full debate on the House floor.