Bill would crack down on predatory practices of third party lawsuit lenders

By Marilyn Tennissen | Mar 19, 2013

AUSTIN – A central Texas lawmaker has authored a bill aimed to crack down on predatory practices by the state’s lawsuit lending industry.

AUSTIN – A central Texas lawmaker has authored a bill aimed to crack down on predatory practices by the state’s lawsuit lending industry.

State Rep. Doug Miller, (R-New Braunfels), is the sponsor of House Bill 1595, the Consumer Lawsuit Lending Act. At a hearing this week before the House Judiciary and Civil Jurisprudence Committee, Miller urged lawmakers to support the bill, which will impose new and necessary regulations on lawsuit loans.

"Lawsuit lenders prey on consumers when they are at their most vulnerable and the industry is growing rapidly in Texas and beyond," said Miller, according to a press release. "These lenders are virtually unregulated, often unscrupulous, and charge fees that are excessive by any standard. With this legislation, we are sending a clear signal: your business is welcome in Texas­, but you are going to face the same proper disclosures, regulations and consumer protections as conventional loan makers and banks."

Lawsuit lending is a process through which litigants and law firms can finance their litigation or other legal costs through a third party funding company. These third party funding companies provide cash advances to litigants in exchange for a percentage share of the judgment or settlement. However, if the case goes to trial and the litigant loses, the third party funding company receives nothing and loses the money they have invested in the case.

HB 1595 would:

  • Subject consumer lawsuit lending agreements to Finance Code provisions if the annual interest rate exceeds 10 percent;

  • Require consumer lawsuit lenders to be licensed under the Finance Code; and

  • Require plaintiff's attorneys to disclose any consumer lawsuit lending transactions to the court and opposing parties.

Chip Hough, chairman of Citizens Against Lawsuit Abuse (CALA) of Central Texas, added, "Just like barratry and online advertising scare tactics, lawsuit lending is another practice that preys upon consumers when they are at their most vulnerable. These practices can hurt consumers and also allow uninvolved third parties to leverage lawsuits, and our courts, for their own personal financial gain."

In addition to CALA, supporters of the bill include the Mexican American Chamber of Commerce, Texas Association of Business (TAB), Mexican American Bar Association of Houston, Hispanic Bar Association of Austin, National Federation of Independent Business (NFIB-Texas) and the League of United Latin American Citizens (LULAC).

"It's rare that you'll see such broad and diverse support from business, consumer organizations and even many in the trial bar, standing together in support of legislation," said Bill Hammond, president and CEO of the Texas Association of Business. "The bottom line is we can all agree that lawsuit lending - operating in its current form -- simply doesn't pass the smell test and must adhere to some standards in order to ensure Texas consumers are protected."

In addition to Texas, legislation to regulate consumer lawsuit lending is being considered this year in Illinois, Indiana, Missouri, Oklahoma, Rhode Island, Kansas and Tennessee.

HB 1595 would apply the same level of consumer protection and transparency that other traditional lenders must provide their customers.

"This legislation is about protecting Texas consumers from a rapidly growing and often unscrupulous industry," Miller added. "Unsuspecting consumers can end up upside down when they take on a lawsuit loan, often owing more to the lender than they receive in a settlement. By calling their high-rate, unregulated loans 'investments,' lawsuit lenders are misleading the public while raising legitimate ethical concerns about their policies and practices."

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