Lawsuit-Loan Lunacy
NEW York is built on business and dreams. We’re no stranger to the rise of new industry. And often, business is conducted in good faith and done with the best of intentions.
However, as bad actors look to take advantage of the system, industries can turn from practical to predatory. That is exactly what is taking place in the now-lucrative settlement-advance industry, also known as “lawsuit lending.”
Recent reporting by The Post and other news outlets has highlighted the urgent need for reform in this sector, which provides up-front cash to plaintiffs in lawsuits who promise to repay the money after winning a settlement or award in their case.
A simple Google search reveals the multitude of firms that peddle these loans in New York and the ways in which they aggressively advertise to vulnerable individuals — pointing up the need for reform. Indeed, we’ve heard horror stories about lawsuit-lending outfits that scammed retired NFL players seeking settlements from the much-publicized concussion case. There have also been reports about lenders who target #MeToo movement victims.
Time and again, lenders exploit people when they are distressed and desperate. Victims of physical, sexual or emotional harassment and abuse have become popular targets for lenders, whose business model unapologetically capitalizes on people looking for a last-ditch solution to their financial woes.
Personal-injury trial lawyers fun- nel a steady stream of desperate, cash-strapped consumers to lenders, who bank on a guaranteed payout at the end of a lawsuit. Not only does this practice raise conflict-ofinterest questions, it’s done in a way that encourages exploitation.
Under current law, lenders are able to offer funds to individuals who are pursuing lawsuits while charging un-capped and unregulated interest rates that, according to some reports, can surpass 200 percent. These astronomical rates can leave a consumer with little to no money at the conclusion of their lawsuit.
Let’s face it: When the majority of a settlement’s funds — which are meant to make up for the actions of a negligent party — wind up in the pockets of a lawsuit lender, something is seriously amiss.
In many instances, these loan contracts also waste valuable court resources, as consumers may prolong litigation by demanding larger monetary awards just to pay back their cash-advances, even after a reasonable settlement is offered.
Like many public officials around the country, I have a problem with the rapacious tendencies surrounding this practice and its mockery of the legal system. As a lawmaker, I believe it’s my duty to help protect residents against industry excess like this.
While I’m a staunch proponent of free enterprise, there has to be a line drawn when the practice becomes blatantly unscrupulous and downright exploitative. In fact, it is because I so strongly support the free market that I believe reforming this system and closing the lawsuit-lending loophole is paramount.
Our state has been given the dubious honor of being ranked among the most litigious and least business-friendly places in the country. Industries like lawsuit-lending benefit trial lawyers while destroying businesses and consumers with sky-high insurance premiums and exorbitant costs of doing business.
To protect consumers from both predatory interest rates and businesses from unwarranted high costs, and to ensure that both lenders and lawyers are operating in the best interest of their clients, Assemblyman William Magnarelli (D-Syracuse) and I have introduced a bipartisan bill in the state Legislature that would limit interest rates on lawsuit cash-advances to comparable rates on other consumer-lending contracts.
The bill would also ban lawyers from receiving referral fees for lawsuit loans and from having a financial stake in lawsuit-lending firms.
This industry cannot continue to operate free of common-sense consumer protections in its own “Wild West.” I encourage my colleagues in the Legislature and Gov. Cuomo to join Assemblyman Magnarelli and myself in support of this legislation.
Let’s bring forth long-overdue regulation so we can help those most in need, weed out bad industry actors and ease the crippling burden of doing business in the Empire State.