By Jill Shackelford
Imagine borrowing $250,000 and two years later owing more than $500,000. That’s lawsuit lending.
Traditional loan sharks and pawnbrokers aren’t the only organizations that lure the cash-strapped into a loan with astronomical interest rates and unfair repayment terms. Lawsuit loan sharks offer money upfront to plaintiffs in civil lawsuits, based on a potential settlement or award from their lawsuit. “Quick and easy” cash — often within 24 to 48 hours — may sound attractive to a plaintiff with an anticipated awarded judgment, but look closer.
Nothing is ever quick and easy. Lawsuit loans, operating without any consumer protection or regulation, can end up costing consumers nearly 100 percent of the loan in compounding interest and hidden fees over the course of a year. In some cases across the U.S., interest and fees on lawsuit loans climbed as high as 150 percent annually.
Year after year, Texas has proudly stood at the forefront of enacting common-sense legal reforms. But for the first time in my memory at least, other states are lapping us on an issue of critical importance to consumers.
What’s more, this is an issue on which both legal reform advocates and even some trial lawyers can agree. That’s a rare occurrence when it comes to reforming our civil justice system.
Perhaps it’s because lawsuit lending cases are just so egregious. But, sadly, it’s likely because lawsuit lending victims are popping up more and more. These victims, who frequently stay under the radar, are starting to share their stories.
Take Illinois resident Debbie Crim, a 54-year old grandmother, who alleges in a $1 million lawsuit that a lawsuit lender charged predatory interest rates of up to 60 percent on loans totaling $108,500 and then came after her when she wouldn’t pay the loan shark’s $413,000 bill.
The legal reform advocacy website www.sickoflawsuits.com has an online calculator where plaintiffs can estimate the real costs of lawsuit loans based on the amount borrowed. The results are eye-popping.
In many cases, the loan amount can end up exceeding any expected awarded judgment, leaving a plaintiff in a new and different world of hurt and facing legal volleys like Crim did.
Still, while other states, notably Oklahoma, Alabama and Tennessee, have advanced smart, pro-consumer lawsuit lending reforms, Texas is falling behind. Bills in the Legislature have languished and never reached the governor’s desk.
Shouldn’t many of the same regulations and consumer protections that apply to traditional lenders also apply to lawsuit lenders? Citizen and business organizations, such as Citizens Against Lawsuit Abuse (CALA), Texas Association of Business and League of United Latin American Citizens, have been vocal supporters of reform at the state Capitol.
And, why should Texas step up? Predatory lawsuit lenders simply should not be allowed to exploit consumers. That alone should be a sufficient reason to see the Texas Legislature pass a bill that clamps down on lawsuit lenders. Requiring that lawsuit lenders come under the same regulatory mechanisms as other lenders in Texas is only common sense.
But we should also be concerned that these predatory lending practices may encourage more litigation and discourage some settlements, something that impacts consumers, employers and access to our courts. Lawsuit lending reform is just another way to ensure our courts are used for justice, not greed.
Let’s keep the pressure on state leaders to take action. It’s an issue on which businesses, consumer advocates, CALA and even many trial lawyers can all agree. It’s time to bring some sanity and consumer protection to lawsuit lending.
Jill Shackelford is chairwoman of Citizens Against Lawsuit Abuse of Central Texas.