by Tom Stebbins, PPI Center for Civil Justice Advisory Board Member
The American civil justice system breaks down when litigation is driven by profit over justice. Nowhere is this tragic trend more evident than in the burgeoning “lawsuit lending” industry.
Last year, former Georgia Attorney General Thurbert Baker, a fellow PPI Center for Civil Justice advisory board member, and I wrote about this issue in an op-ed for the Albany Times Union, an influential newspaper for matters of public policy in New York’s capital city.
Since then, articles have appeared in both the left-leaning New York Times and the right-leaning New York Post which reveal how, in the absence of common sense regulations and consumer protections, lenders exploit financially desperate, vulnerable citizens.
Beyond the more widely reported predatory excesses of the industry, the Times also uncovered a grotesque, complex scheme in which lenders and lawyers convince and frighten women into getting unnecessary surgeries so they can rack up interest payments and legal fees.
Thankfully, these reports grabbed the attention of legislators in Albany. In true bi-partisan fashion, Democratic Assemblyman William Magnarelli and Republican State Senator Rob Ortt have introduced legislation to give proper regulation around lawsuit lending. Their bill also ensures that these lenders are subject to consumer protection laws, including limiting interest to the state’s existing cap on consumer loans, which is 16 %. Democrats in the Assembly, including Consumer Affairs Committee Chair Matthew Titone, are promising to tackle the issue.
This week, ahead of a hearing called on the issue by the New York State Senate Standing Committee on Consumer Protection, my colleague Adam Morey had an op-ed published in the New York Post. He recapped recent media reports about the industry’s more predatory practices and built a strong case for why lawsuit-cash-advance firms should be subjected to the same oversight as all other consumer lenders.
Along with Adam, I testified at the hearing in support of applying New York’s usury rate caps to lawsuit funding. During the proceedings, both Democrats and Republicans grilled representatives of the lawsuit lending industry, with Democratic Senator Marisol Alcantara noting that while lawsuit lending may currently be legal, “slavery was once legal but it was wrong.”
Although he was unable to join us to testify in Albany, Attorney General Baker was able to submit written testimony in which he concluded that the rise of third party consumer lawsuit financing “is a slippery slope that eventually re-victimizes the most vulnerable among us and does more harm than good to America’s system of jurisprudence.”
Testifying in support of the industry, Cardozo Law Professor Anthony Sebok presented the results of his latest paper on lawsuit financing. He attempted to defend the industry in claiming that his results found that the median interest rate from a set of claims he obtained from a single lender was “only 44%.”
Wow, this rate would make a loan shark blush!
Or, as Lev Ginsburg of the Business Council of New York State succinctly remarked at the hearing, “if Tony Soprano would go to prison for that, it’s too high.”