You’ve probably seen those daytime or late night ads that ask, “Have you been seriously injured in an accident that wasn’t your fault?” These are the words of litigation lenders, who provide immediate cash advances to people embroiled in legal cases and are in need of monetary assistance. The lenders promise that clients won’t have to pay a penny back if they don’t win their suit. But, like most things, there is a catch: if you win, you have to pay back more than what you initially received.
These litigation lenders charge clients high interest rates and use semantics to open loopholes in the state’s usury laws. By calling their loans “advances” and their interest rates “fees,” litigation lenders are able to charge interest rates that can exceed 200 percent.
Attorney Michael St. Pierre of Revens, Revens and St. Pierre called companies like this “litigation predators.”
“They go after people in the most vulnerable position,” he said.
A bill introduced by Representative Michael Marcello aims to cap their interest rates and prevent clients from getting caught in the web of debt.
“Usually it’s a small loan,” said Marcello. “But by the time they’re done they have to pay back $5,000.”
Marcello said the issue has come to his attention both in his practice and through his involvement with the Bar Association.
“It’s an increasingly difficult problem in Rhode Island,” he said.
Companies like Oasis Legal Finance, based out of Northbrook, Ill., are a growing presence in Rhode Island. Eric Schuller, a spokesman for Oasis Legal Finance, said companies like the one he represents must charge high fees because of the high risk they assume.
“We have a high loss rate,” he said. “So, unfortunately, we have to charge higher fees.”
Schuller’s issue with the Rhode Island bill is the language.
“It calls these products loans, but they’re not loans because there’s no guarantee of repayment,” he said.
Schuller said 47 percent of the cases they take on yield less than the contracted amount.
“They only pay us back if there’s enough money,” he said. “The consumer is never worse off.”
But Marcello and St. Pierre agree that lenders like Oasis carefully choose the cases they take on in order to assure they’ll get their return.
“They’re very good about selecting those cases,” said Marcello.
St. Pierre said lawyers look at a case and decide whether or not they can win it before they take it on, therefore unintentionally weeding out weak cases.
“We’re providing a screen for these people,” he said. “They know that.”
Marcello’s bill aims to close loopholes that allow these lenders to charge interest rates that exceed the state’s 30-percent cap. Cash advances may not initially have interest attached to them, but after six months, an interest rate of 80 percent could kick in, said Marcello. The bill would also allow these cash advances to fall under state guidelines for other types of loans.
“These types of agreements are completely unregulated,” Marcello said. “It’s the wild west of lending.”
The bill was heard by House Corporations last week and is being held for further study. Marcello said defense and prosecuting attorneys alike agree that something must be done about the litigation lending loopholes.
“We don’t like anything that interferes with settlement,” he said. “We don’t want interlopers coming in and messing that up.”
Schuller said he would be willing to work with Marcello on fine-tuning the legislation. He said in other states, like Nebraska and Maine, legislation has been passed that ensures consumers know exactly what they’re signing up for when they enter into a contract with litigation lenders. These states also cap the “fees” or interest rates at 36 months. Here in Rhode Island, where the average case takes five years to settle, fees can continue to grow and accrue.
Schuller said he would be fine with legislation similar to that passed in Nebraska or Maine, but said to cap the litigation lenders’ interest rates at 30-percent would put them out of business.
“We can’t operate under that particular guideline, and what happens is it’s really going to hurt the consumer,” he said.
But Marcello said putting litigation lenders out of business isn’t the objective.
“We just want them to get under the laws of our state,” he said.