Texas leg. fails in attempt to reform lawsuit lending

Despite support from legal groups and business organizations, a bill to regulate lawsuit lending failed to pass lawmakers during Texas' recent regular session.

Lawsuit lending refers to cash loaned to plaintiffs awaiting judgments or settlements in civil lawsuits, most often personal injury cases such as auto accidents, product liability issues and slips and falls. 

The Texas Consumer Lawsuit Lending Act (House Bill 1595) was authored by state Rep. Doug Miller, R-New Braunfels. It sought to rein in excessive fees and interest rates charged for loans offered from pending lawsuits. The bill passed out of the House Judiciary Committee at the end of April, but went no further.

HB1595 would define lawsuit funding as a "loan," making it subject to loan industry regulations. It would also have capped the interest rate at 10 percent and required disclosure of agreements to all parties in the lawsuit.

Support for the bill came from groups like the U.S. Chamber Institute for Legal Reform, U.S. Chamber of Commerce, National Federation of Independent Business, Texas Association of Manufacturers, General Electric, United Way, Texas Association of Business, Texans for Lawsuit Reform and the Texas Civil Justice League. The Southeast Texas Record is owned by the U.S. Chamber Institute for Legal Reform.

"The lawsuit lenders charge sky-high interest rates on these loans, often more than 100 percent annually," said Justin Hakes, a spokesman for the U.S. Chamber Institute for Legal Reform, in a Fox Business News artcle. "Even when the consumer 'wins' or settles the case, he or she often recovers no money, because the entire amount of the award or settlement goes to pay the plaintiff's attorneys or to repay the lawsuit lender."

However, the lawsuit lenders opposed the legislation and said it went too far. Out-of-state companies like Oasis Legal Finance LLC and LawCash said the bill threatened the industry's existence.

The practice is booming, and accounts for an estimated $100 million in business every year, according to an article in Fox Business News.

The lending industry says interest rates are high because they take on a high risk since most of the borrowers tend to have poor credit ratings. And the lender is only paid back if there are sufficient funds available from the borrower's settlement proceeds.

The lenders also say they provide a service to people who often use the funds to avoid mortgage foreclosures or eviction from their homes, to put food on the table and make car payments.

State Sen. John Corona, R-Dallas, also tried to pass lawsuit lending reforms this session. Senate Bill 1247 would have created a state regulatory framework for payday and auto title lenders that offer short term loans at high interest rates. His bill failed as well after it reached the Calendars Committee.

Iowa, Illinois, Indiana, Kansas, Missouri, Mississippi, Nevada, Oklahoma, Rhode Island and Tennessee also had lawsuit lending reform bills filed this year.