Loan & Order: States Object to 'Payday' Lawsuit Lending

April 29, 2013
Wall Street Journal  

Lawmakers in several states are debating whether to crack down more on the nascent business of lending money to plaintiffs in lawsuits and collecting when the litigants win a settlement. Lawsuit-lending organizations like Cash4Cases Inc., LawCash, and Atlas Legal Funding claim that they provide money to private individuals -- often suing over an injury -- who are strapped for cash as their lawsuits progress, giving them a chance to stay in a lawsuit long enough to get a just result. In one case, Sharon Smallwood was hurt in a car accident and took out a loan from Oasis Legal Finance LLC to pay her medical bills while her case was pending in court. She said she did not know the exact interest rates on her loans, but she understood their basic structure and said that they have been "a huge help." Critics, however, say the loans encourage unnecessary litigation and charge unfair fees amounting to as much as 100 percent a year. There also is always the chance that any settlement will not be enough to cover what plaintiffs owe. Many state legislatures are proposing bills that would subject the lawsuit-funding industry to state laws governing the interest rates that banks and other lenders are permitted to charge. In Louisiana, for example, a state bill would provide caps of between 21 percent and 36 percent a year, depending on the loan amount.
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