Although the courts are intended to be accessible to all citizens with grievances, the sad fact is they come with an increasingly large entry fee. Citizens can choose to represent themselves when filing or defending a lawsuit, but most citizens don’t have the knowledge or training to effectively represent their own interests in a court of law. On the other hand, the costs of hiring an attorney are prohibitively high for a lot of people.
In order to help people overcome this hurdle, certain lending institutions have arisen that lend plaintiffs the money they need to file a lawsuit, but the plaintiff only needs to repay the loan if they win their case.
The state of Colorado recently filed a lawsuit against one such lawsuit lender, Oasis Legal Finance, for allegedly extending credit in the state without a license under the state’s Uniform Consumer Credit Code (UCCC). Oasis countered that it was not extending credit, it was purchasing an investment.
Colorado argued that these “investments” look a lot like loans, including hefty interest rates that are often as high as 40% per year. One example of one of these litigation-finance contracts the state pointed to involved an annual return as high as 60%.
Under the UCCC, a loan is defined as debt that is created by the lender’s payment of or agreement to pay money to the consumer. The UCCC requires payday lenders and other institutions that extend credit at rates above 12% to be licensed and supervised by the state.
The court ruled against Oasis and determined that litigation-finance contracts qualify as loans under the UCCC. Oasis appealed the decision all the way up to the Colorado Supreme Court, which maintained the ruling against Oasis.
The ruling comes as a loss to lawsuit lenders and supporters who claim this lending practice helps bring equality to the bargaining power between injured consumers and insurance companies. Consumers rarely have access to the same resources as wealthy insurance companies who maintain a team of experienced attorneys on their staff. Those who support this lending industry claim it inhibits insurance companies from using delays and other practices to pressure plaintiffs into settling for smaller sums than they could otherwise attain.
On the other hand, the U.S. Chamber argues these lending practices both stimulate more litigation and inspire consumers to hold out for more money in order to repay their hefty loans. That might not be such a bad thing if the settlement money actually ended up in the plaintiffs’ hands, instead of going to the lending institutions that financed the lawsuit for a fraction of the money they’ll collect from the settlement.
Oasis stopped doing business in Colorado in 2010 after the UCCC issued an opinion that placed it under the same restrictions as other lending institutions.
Colorado may have won this round, but it has yet to be seen whether this decision will put a stop to still-growing industry of litigation finance. Investors are increasingly attracted to this market, not least of all because of the high interest rates.
Our Naperville, Illinois consumer rights private law firm handles individual and class action predatory lending, unfair debt collection, lemon law and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totalling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at Lubin Austermuehle are proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.
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