Pre-settlement lenders say rate cap could doom industry

Representatives of businesses that provide pre-settlement funding to plaintiffs said they would be forced out of Indiana by a proposal to cap their returns at 25 percent, after which a House committee advanced a bill that would do just that.

The House Insurance Committee on a 10-2 vote advanced House Bill 1205 that for the first time would regulate cash advances for plaintiffs who have cases pending. The bill defines the business as “civil proceeding advance payment transactions.”

Supporters of HB 1205, including bill author and Insurance Committee Chairman Rep. Matt Lehman, said the bill is aimed at curbing abuses of an unregulated industry in which some plaintiffs have been charged fees equal to annual interest rates of 150 percent or more.

Industry representatives said they back regulation, but that the bill’s proposed maximum return of 25 percent more than an advance – for instance, a $12,500 payback on a $10,000 advance – would put them out of business in Indiana.

Representatives of Oasis Legal Finance and others testified that the industry provides needed cash for plaintiffs facing financial hardship ahead of settlement of their cases. They said the transactions aren’t loans because nothing is owed if a plaintiff doesn’t win a case or receive a settlement. Fees charged reflect the risks of a business in which 10 to 20 percent of advances are losses, they said.

An Oasis representative said the legislation was “an insurance protection bill, not a consumer protection bill.”

But insurance and business groups said the bill is needed to rein in what they said is a predatory business that can deprive litigants of their settlements and prolong litigation.

A State Farm Insurance representative acknowledged the need, but said nothing justified triple-digit interest rates. He also said litigation should “not be turned into a stock market for investors.”

Lehman said after the bill advanced that the 25 percent cap was negotiable.