Lawsuit loans are Trojan Horses. They appear at face value to be a great deal for plaintiffs – money to cover their costs during litigation that they don’t have to pay back unless they win an award from the suit. But sky-high interest rates and hidden payment schedules lie beneath the surface, misleading and deceiving plaintiffs who ultimately are forced to pay back more money to the lender than they often receive from the lawsuit. A bill currently being debated by the Indiana Legislature would provide some oversight of the unchecked lawsuit lending industry and prevent this legalized looting.
Like most states, Indiana has limits on the amount of interest a lender can charge. These regulations protect consumers from being crushed by exorbitant fees and unmanageable debt. But lawsuit lenders have been able to skirt these rules by claiming that their system of requiring payment only if the plaintiff receives an award does not qualify as a true loan. Yet individuals who sign up for these lawsuit loans can end up paying interest rates up to 200%, well beyond the cap for loans set by the state.
Fortunately, these predatory lending tactics are not going unnoticed. Recently, the Colorado Supreme Court ruled that lawsuit lenders are in fact loan companies and should be subject to the same regulations and caps that other lenders in the state adhere to. The ruling set an important precedent and sends a message to lenders that these shark-like tactics will no longer be tolerated.
Other states should be encouraged by the Colorado ruling to evaluate regulations on lawsuit lending. Indiana is one of a few states with lawsuit lending bills up for debate during this legislative session. Two bills circulating through the Indiana Legislature seek to rein in the industry with caps on loans.
The issue now, however, is that the Indiana House and Senate have two different ideas of what that cap should look like. The House passed a bill that includes a 36% interest rate cap, while the Senate version proposes up to a 91% cap.
A 91% cap is almost three times greater than the limit set on loan companies by the Indiana Uniform Consumer Credit Code and hardly signifies willingness by the lawsuit lending industry to work with legislators. The two bills are now in conference to see if some compromise can be reached.
When determining an acceptable interest rate cap, legislators must consider how these unchecked loans negatively impact the state’s litigation system. The funders deliberately entice clients with promises of payment now for lawsuits that they don’t have to win. But it is a calculated bet on the part of the lenders, who target suits from which they anticipate receiving benefits. The loans change the decision making of the plaintiff, at the expense of the defendant and the Indiana court system. The fees stacking up incentivizes the plaintiff to hold off for a bigger settlement or to reject a settlement in hopes of receiving a court award large enough to cover all that they now owe to the lender.
Plaintiffs should not be tricked into what appear to be “risk-free” loans, and the justice system should not be taken advantage of. The Indiana Legislature has a responsibility to regulate lawsuit lenders with a reasonable rate cap and protect all Hoosiers from the siege of lawsuit lenders and their unjust fees.