Can you imagine agreeing to a loan on which you would have to pay over 36 percent in interest?
Of course not, because it would be absurd unless you were really desperate.
Many states cap the interest rate a lender can charge its customers. In Indiana, for example, it’s capped at 36 percent – still a generous deal for the lender, but protects the borrower from being taken advantage of, and having to pay back much more than their loan is worth.
One group says a 36 percent interest rate is not high enough – and that they should be exempt from state lending laws. Meet the personal injury lawyers.
Some companies are in the business of advancing money to would-be plaintiffs involved in personal injury lawsuits. According to a New York Times report by Binyamin Appelbaum, there are about a dozen such companies nationwide, and several smaller companies. They collectively lend plaintiffs $100 million per year in increments of a few thousand dollars to cover their housing and medical expenses. Plaintiffs pay back their loans plus interest after lawyers win their case. If the lawyers lose, they owe nothing. The message seems to be that filing a frivolous lawsuit can be a pretty good investment.
Personal injury lawyers say that’s why they should be excluded from states’ loan caps: these aren’t loans – they’re investments. And they’re taking their show on the road to Legislatures across the country. Oasis Legal Finance in Illinois recently proposed exempting lawsuit lending companies from Indiana’s 36 percent cap on interest. Senator Randy Head said that Oasis’s advocacy first brought his attention to the issue, which resulted in his introduction of Senate bill 97. It included a modest restraint on lenders by preventing them from providing anything beyond money to plaintiffs, as well as assertions from the industry that they were attempting to self-regulate in the name of consumer protection. It was that portion that helped to carefully pitch it to the state Senate as a pseudo-reform bill and ultimately led to that chamber’s passage of it last month, with a vote of 36 – 14.
“Most of what they proposed is contained in the bill,” the sponsor acknowledged to the New York Times.
While “lawsuit lending” might help one who is truly besieged with medical bills and unable to work due to someone’s negligence as their case is being sorted out, it’s hard to deny that it also gives plaintiffs and their attorneys a hefty incentive to pursue the largest financial rewards possible.
The personal injury lawyers’ trade group is trying to carve themselves out of regulation through the legislative process in Alabama, Kentucky, and Maryland as well, and may be focusing on Arkansas and Nevada in the near future. The watchful eye of the chambers of commerce has kept efforts at bay in Kentucky, which have successfully blocked similar legislation from passing the state Senate. And since all of these bills were introduced in February 2011 or later, we may only have seen the tip of the iceberg in trial lawyer lobbying.