Oct 28 2016

Payday Lending Rules Apply to Litigation Funding, Colorado Court Rules – Law Blog #unsecured #personal #loans

#payday loans today


David Plunkert

The highest court in Colorado dealt a setback to the consumer legal funding industry, ruling that businesses that offer cash advances to plaintiffs in personal injury cases should be subject to payday lending rules.

The Colorado Supreme Court sided with the state in Colorado s long-running legal battle against two national litigation funding companies, Northbrook, Ill.-based Oasis Legal Finance LLC and Brooklyn-based LawCash .

The decision today by Colorado’s highest court upholds an appeals court decision against Oasis Legal Finance, believed to be the largest firm in the consumer end of the litigation-finance industry. It’s a loss for lawsuit lenders and supporters who say the industry helps equalize the bargaining power between injured consumers and insurance companies, who can use delays and other tactics to pressure plaintiffs into settling for less. But it’s a victory for the U.S. Chamber, which opposes lawsuit lending because it believes the loans both stimulate more litigation and inspire consumers to hold out for more money in order to repay loans that frequently have interest rates above 40% a year.

Oasis Legal and LawCash advance payments to plaintiffs bringing tort claims, including those involving auto accidents, slip and falls and medical malpractice incidents. The plaintiffs get money, typically less than $1,500, to help tide them over as they head to court, while the companies get a stake in any proceeds the plaintiffs win whether from a settlement or from damages.

Oasis and LawCash says they stopped operating in Colorado in 2010 after the state office that regulates the Colorado Uniform Consumer Credit Code  held that the state law applies to their businesses, subjecting them to disclosure and licensing requirements.

But after they went to court to try to get that regulatory opinion overturned, the state attorney general s office counter-sued, accusing the companies of unlicensed lending and charging exorbitant interest rates to plaintiffs.

The companies argued that they operate very differently from typical short-term lenders. Their customers, they noted, don t have to pay back any money if the amount they ultimately recover is less than the cash advanced.

Oasis Legal and LawCash lost at the trial and appellate levels. On Monday, the state Supreme Court affirmed those lower-court rulings. Wrote Justice Richard Gabriel :

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.

This anomalous decision imposes state government regulations designed for credit products on property rights, the Alliance for Responsible Consumer Legal Funding, a trade group that represents the two companies, said in a statement. The group said the businesses are considering their legal options.

Forbes notes how the case was an example of the Chamber of Commerce pushing for more, not less, regulation. Regulation of plaintiffs’ conduct under the [Colorado consumer credit code] will insure that plaintiffs’ business model will be licensed and transparent, and that plaintiffs will be prevented from charging interest rates that pervert the prosecution of personal injury cases, lawyers for the business group wrote in a brief to an appellate court that heard the case.

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