Vermont Limits Plaintiffs' Options for Financing

Originally Published May 20, 2015

On May 20, 2015, state representatives voted to pass a yearlong moratorium on what they call “settlement loan” companies. It’s a temporary ban, designed to stave off plaintiff financing’s perceived evils until lawmakers can learn about the industry and craft genuine regulation.

Why would lawmakers ban something they know nothing about? Well, they heard all they need to know from plaintiff financing’s opponents. Look no further than this Vermont Digger op-ed by lobbyist Matt Mincieli, executive director of “high tech advocacy” group, TechNet:

Here’s how it works. A lending company offers you a certain amount of money upfront as part of a potential payout of a settlement. You need the money to cover medical or living expenses, so it seems like a good deal. Here’s how it works. A lending company offers you a certain amount of money upfront as part of a potential payout of a settlement. You need the money to cover medical or living expenses, so it seems like a good deal. But what the representative doesn’t tell you is the loan comes at astronomically high interest rates — as high as 150 percent annually, sometimes even more than that. Eventually, if you win and there’s a payout, there’s usually very little left for you, if any. And, in some cases the consumer ends up actually owing the lending company because of the usurious interest rates. So why would people fall for it? Because these lending companies prey on those who are most vulnerable — people who are in dire financial situations and desperately need a quick infusion of cash. The industry’s success is based on a lack of transparency and a lack of regulation. According to the Center for Public Integrity, business is booming for these companies, to the tune of more than $1 billion invested in these lawsuits at any given time. While you’re waiting for your big payout, it’s these companies that are getting rich. The payout from the lawsuit is redirected from you, the consumer, to them, the lenders.

If you’ve been following along at home, you’re probably already clued in to the many inaccuracies and outright falsehoods in Mincieli’s polemic. plaintiff financing is an investment, not a loan; it doesn’t and shouldn’t fall under usury caps; consumers only repay the funder if they win, and they can’t possibly go into debt.

He later asserts that if lawmakers don’t cap funding rates at 18%, “businesses in the state will be subjected to frivolous lawsuits, and the judicial system will continue to be bogged down due to unnecessary litigation.” Putting aside the myth that plaintiff financing causes frivolous litigation, this line of rhetoric is insultingly hypocritical. Mincieli has already acknowledged that the typical plaintiffs who seek financing are “vulnerable” and “in dire financial need.” He’s not wrong – most plaintiffs need financing because they’ve just had the worst days of their lives. But they are far from helpless; every customer is advised by an attorney, who must sign off on the contract. And regardless of the facts he ignores, for Mincieli to assert that he’s defending consumers and in the next breath trash their suffering is pure intellectual dishonesty.

Unfortunately for Vermont plaintiffs, this is exactly the kind of rhetoric that wins over lawmakers. Here’s the most bizarre aspect of the story: the Digger reports that the House passed its ban even though it only knows of one Vermont resident who has taken plaintiff financing. In other words, it removed financing as an option for all plaintiffs residing in Vermont based purely on the testimony of the industry’s enemies.

Eric Schuller, president of the Alliance for Responsible Consumer Legal Funding, wrote in an email:

When this issue has presented itself in other states, those legislatures allowed the industry to operate while they studied the issue… thereby not depriving their citizens of the opportunity to receive financial assistance while their case is going through the legal system when they need it the most. We look forward to working with the Commissioner of Financial Regulations and the Attorney General’s offices to develop proper regulations on the industry. The industry wants to ensure consumers of Vermont are protected while allowing the product to be offered to those citizens who need it while their claim is making its way through the legal system.

S.73, a “consumer protection” act, now awaits Governor Peter Shumlin’s signature.