The Hon. Thurbert Baker

The Hon. Thurbert Baker

On Monday the House Judiciary & Civil Jurisprudence Committee heard two bills proposing to regulate the lawsuit lending industry, HB 1595 by Rep. Doug Miller (R-New Braunfels) and HB 1254 by Rep. Senfronia Thompson (D-Houston). Testifying in support of HB 1595, former Georgia Attorney General Thurbert Baker stated:

“This bill offers the ability to level the field for consumers. In my thirty years practicing law, I don’t think I have even seen an issue that concerns me more from either the consumer standpoint or the general law standpoint. Exorbitant interest rates of over 100% are not uncommon in this industry. People in the industry would probably tell you that they are helping people and providing a service that otherwise wouldn’t exist, but I would question whether they are actually helping or hurting. At the heart of the issue, is the injection of a third party into the lawyer-client relationship. I think it jeopardizes the professional independence of lawyers. Many attorney generals and regulators around the country will take notice of any action Texas takes on this matter.”

Another witness on behalf of HB 1595, Jeff Hall of Henryetta, Oklahoma, testified regarding a lawsuit loan he contracted with Oasis Legal Finance, one of the largest lawsuit lenders in the country. Hall suffered serious injuries on the job and, pending settlement of his workers’ compensation claim, took out a loan from Oasis to avoid foreclosure on his home. When his case did not settle within the six months his attorney predicted, the interest charges on his $6,600 loan quickly mounted to a total of $21,000. Hall eventually settled with Oasis for $13,500, more than twice the amount he borrowed.

Various representatives of the lawsuit loan industry testified in opposition to HB 1595, which limits the interest that may be charged on a lawsuit loan. They generally made two claims: (1) a lawsuit lending transaction is not a “loan,” because it is a nonrecourse transaction contingent on the outcome of the consumer’s claim; and, consequently, (2) the financing charges are not “interest.” They also argued that if lawsuit lending transactions were regulated as loans and subject to interest rate caps, they could not remain in business (although in states that regulate interest rates on lawsuit loans, there seems to be little effect on their business). The industry supports HB 1254, which requires licensing and certain contract terms but does not limit interest charges.

Another key issue is the disclosure of lawsuit lending agreements to the parties in litigation. HB 1595 calls for disclosure of these agreements to the court and the opposing parties, while HB 1254 contains no disclosure requirement. Regardless of the argument over whether and at what level interest charges should be capped, disclosure of these agreements is necessary to protect the integrity of the judicial process itself. Just as plaintiffs can discover the existence and amount of the defendant’s insurance coverage, a defendant (and the court) should know if there is a third-party lender with an interest in the outcome of the case.

Both bills were left pending before the committee.

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