Lawsuit Lending Legislation Made Big Leap in 2016 Session

10044552The most unbelievable surprise of the 2016 Indiana legislative session ended up being the bill to address the practice known as “lawsuit lending.” At the beginning and throughout much of the session, it was believed by all parties that this would be the year to reach an agreement on the issue. But as both sides began to define terms, it was clear that we weren’t really any closer than in years past.

Lawsuit lending or civil proceeding advance payment transactions, as described in HB 1127, is the practice where a third party finance company loans money to a plaintiff in anticipation of a favorable settlement in a lawsuit. The finance companies justify a high interest rate because if the plaintiff does not win the suit, there is no requirement to repay the amount financed/loaned.

The Chamber has always maintained that this practice has an adverse impact upon the settlement/litigation process. As has been the case previously, Rep. Matt Lehman (R-Berne) was the author in the House and Sen. Randy Head (R-Logansport) was the author in the Senate. The Chamber and coalition members have supported Rep. Lehman’s position and the lawsuit lending industry has supported Sen. Head’s.

Representative Lehman took a different approach this year and attempted to place the transactions under the Uniform Consumer Credit Code (UCCC). Because of the way that interest rates and deferral interest rates are calculated for banks under the UCCC, there was some confusion as to how these transactions would operate for lawsuit lending purposes. To keep a long story short: The industry wanted a $500 document fee on all transactions, 36% interest rate cap and a 36% deferral fee. Due to how their product is financed, it effectually produced an interest rate of 72% – which was totally unacceptable to the Chamber, the Indiana Manufacturers Association, the Insurance Institute of Indiana and other business interests. During conference committee time, Rep. Lehman made several proposals to find common ground.

The night before the last day of session, the Chamber met with Senate President Pro Tem David Long (R-Fort Wayne) to discuss our concerns. He thought a deal might still be struck. Early the final day, a conference committee report was presented and the legal finance industry was opposed to it. By 10:30 a.m., all parties agreed that the bill was dead and we would be back next year to fight even stronger. As a result, most of the coalition members had returned to their respective offices for the day. A little after 11 a.m., the local contract lobbyist for the American Legal Finance Association approached the Chamber to see if there could be a tweaking of the fees if the interest rates were kept lower. Around 12:30 p.m., Rep. Lehman asked the coalition if all of us could live with a 36% interest rate, a 7% service fee, a $250 document fee for loans under $5,000 and a $500 document fee for loans in excess of $5,000. The kicker was that Lehman said that it would be calculated based upon APR (Annual Percentage Rate).

Immediately the Chamber and others said take the deal. Without the APR the deal would have been OK at best, but with APR this was a game-changer. The rest of the afternoon and evening we worked ferociously to get the Senate Democrats to get Sen. Greg Taylor (D-Indianapolis) to sign the conference committee report and get the bill passed. The final HB 1127 passed the Senate 40-10 and was in the last batch of bills to be voted on in the House, passing by a margin of 63-32.

The Chamber wants to thank Jon Zarich, representing State Farm, and Michael Niland and Logan Harrison of the Insurance Institute for their amazing efforts. Their partnership with the Chamber helped make the passage of lawsuit lending possible after six long years.

‘Lawsuit Lending’ and Asbestos Litigation Bills Expected

statehouse-picLast month the Indiana Chamber reported that a Colorado Supreme Court decision determined that “lawsuit lending” is a loan and will be regulated under the Uniform Consumer Credit Code (UCCC) in Colorado – and that it could impact what happens in the Indiana General Assembly. (Lawsuit lending is the practice of advancing money to a plaintiff/someone involved in an accident in anticipation of winning a lawsuit in court. If the plaintiff is awarded a settlement, the advance must be repaid at considerably high interest rates. If the plaintiff loses the suit, there is no obligation to repay the loan.)

Representative Matt Lehman (R-Berne), recently elected the House GOP Floor Leader, has indicated that he indeed will be filing his annual lawsuit lending bill – though it will look different. Previously the measure was titled Civil Proceeding Advance Payment Transaction (CPAP), which was defined as a nonrecourse transaction in which a person (CPAP provider) provides to a consumer claimant in a civil proceeding a funded amount. However, this year’s version will mirror the language in Colorado. The 2015 language specifically stated that the UCCC does not apply to a CPAP transaction; but his year’s bill (although not yet filed) will place the transaction under the UCCC.

Separately, Rep Tom Washburne (R-Evansville) will be filing a bill regarding asbestos litigation. It’s expected to require a plaintiff who files a personal injury action involving an asbestos claim to provide information to all parties in the action regarding each asbestos claim the plaintiff has filed or anticipates to file against an asbestos trust. The bill’s intent is to provide transparency to asbestos litigation and to discourage a plaintiff from being able to file an asbestos suit against an employer and also file a claim to an asbestos trust.

Colorado Court Decision May Impact Indiana’s ‘Lawsuit Lending’ Battle

10044552As the 2016 legislative session nears, an interesting development occurred in Colorado over an issue that the Indiana Chamber has been working on for the last several years. This week, the Colorado Supreme Court determined that the practice of litigation finance, or more commonly referred to as “lawsuit lending”, was determined to be a loan and subject to Colorado’s Uniform Consumer Credit Code (UCCC).

Lawsuit lending is the practice of advancing money to a plaintiff/someone involved in an accident in anticipation of winning a lawsuit in court. If the plaintiff is awarded a settlement, the advance must be repaid at considerably high interest rates. If the plaintiff loses the suit, there is no obligation to repay the loan.

Proponents of the industry have claimed that the advance is not a loan because there is no recourse if the suit is lost. Opponents (including the Indiana Chamber) believe that this process interjects a third party into the civil justice system and prolongs the settlement process.

The Colorado Supreme Court’s decision puts lower interest rate limits on the advance of these loans. Two companies doing business in Colorado stopped operating in 2010 after the state office that regulates Colorado’s UCCC determined that the state law applies to their businesses. After the two companies filed suit to overturn the regulatory opinion, the state attorney general’s office countersued. The companies were accused of unlicensed lending and charging “exorbitant” interest rates to plaintiffs.

In conclusion, the Colorado Supreme Court wrote: “We hold that litigation finance companies that agree to advance money to tort plaintiffs in exchange for future litigation proceeds are making ‘loans’ subject to Colorado’s UCCC even if the plaintiffs do not have an obligation to repay any deficiency if the litigation proceeds are ultimately less than the amount due. These transactions create a debt or an obligation to repay that grows with the passage of time. We agree with the court of appeals that these transactions are ‘loans’
under the code…”

Attempts to regulate the practice have been unsuccessful in Indiana. Hoosier proponents of the practice have indicated that subjecting finance companies to the UCCC in Indiana or subjecting them to an interest rate of less than 45% will put them out of business, so there has not been language that could bring about a compromise. The Indiana House of Representatives has passed a bill for several years that the Chamber has supported. However, the Senate has sided with the lenders and stifled the Chamber’s attempts to forward our position.

Still, the Colorado Supreme Court decision might be a game-changer in Indiana. It would not be surprising to see legislation introduced that will mirror what happened in Colorado. Last session, a similar measure was inserted as an amendment into a bill that came over from the House. The language was removed on the Senate floor before a vote was taken. Legislation this session that would be tied to Indiana’s UCCC should be assigned to the House Financial Institutions Committee, where it will find support.

Likewise, any bill tied to the UCCC should be sent to the Senate Insurance and Financial Institutions, chaired by Sen. Travis Holdman (R-Markle), where it would most likely find support. However, the issue historically has not been tied to the UCCC and has been assigned to the Civil Law Committee, where Sen. Joe Zakas (R-Granger) is chair. Senator Zakas has not been supportive of the Chamber’s lawsuit lending position.

The Chamber anticipates further debate on this issue as the new legislative session unfolds.