Tennessee Legislature Weighs Bill Regulating Lawsuit Financiers
One industry which has enjoyed an uptick in recent years is that of lenders who finance injury lawsuits. These lenders provide the up-front cash some injury victims need to pursue their case in court. In exchange, they receive a sizable payback later. Some see these lenders as necessary helpers of everyday people as they take on well-funded opponents. Others view them as predators preying upon desperate victims. The Tennessee Legislature in now joining the debate, considering a bill that would regulate the industry and restrict the amount of interest these companies can charge.
We do not advise or encourage clients to use lawsuit financing, as the interest rates are almost always excessive. In almost every case, a client can find another source of funds — family, friends, etc. to help them get through while awaiting a recovery. And debt collectors who are seeking collection of unpaid medical bills will usually suspend their activities if they learn there is a lawsuit from which they might eventually get paid. However, there are some cases in which it might be unavoidable as there is simply no other source of funds to provide for the costs of daily living. In such a case, a lawsuit loan might provide a temporary short term solution.
Lawsuit financing typically operates in the following manner: a lawsuit lender provides an agreed-upon sum of money to an accident victim who is suing those responsible. If the victim succeeds in court, then the lender gets a set percentage of the victim’s settlement or judgment award. The victims usually incurred their injuries in auto accident, workplace accident, slip-and-fall or product liability cases. In successful cases, the total recovery for the lenders often translates to an extremely high rate of interest. Some lenders also charge substantial fees for their services.
Jack Johnson, a state Senator from Franklin, proposed SB 1360, which would install several new protective restrictions on these lenders, including a mandatory five-day period in which a borrower could cancel his/her contract at no cost. The law, if enacted, would also limit lawsuit loans to a maximum three-year period and 25 percent annual interest. “It is absolutely the wild, wild west in the state of Tennessee. There is no oversight, there is no regulation, there is no cap and there is no absolutely no limit on what a lawsuit lender or lawsuit funder can charge,” Johnson told tnreport.com.
Some conservative critics of the bill decried it as an improper governmental intrusion into free enterprise. The lenders, they argue, are taking a risk by making the loans and the state should not restrict their returns on those risks. Some progressive critics have proclaimed the bill is an attempt to protect big insurers like State Farm and Allstate by reducing the number of people who can afford to sue and thereby lowering the number of cases the insurers must defend.
Generally, your attorney is extremely limited in the financial assistance he/she can directly offer you as you pursue your case. Most types of financial aid from your attorney would create impermissible conflicts of interest and are prohibited by the rules governing lawyers. However, an attorney definitely can advise you about the wisdom of using a third-party financier in your case.
Many accident victims are people of limited financial resources and, even if they have a very strong case on the facts and the law, they still may struggle with securing the necessary funding to pursue their case in an effective manner. Litigating an injury case is more than just facts and law; it involves balancing numerous competing factors to determine what the best course of action is. For excellent advice and zealous representation in your personal injury case, consult the Nashville injury attorneys at the Law Office of David S. Hagy, PSC. We can provide you with thoughtful counsel and strategic representation to achieve your best outcome. Reach us online or call (615) 975-7882.
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- WSJ Article Exposes Hypocrisy Of Arbitration, Nashville Trial Lawyer Blog, Jan. 24, 2014
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