Legislation aimed at regulating the lawsuit lending industry in Illinois is being advanced in the State Senate.
A pro-business bill sponsored by State Sen. Dale Righter (R-Mattoon) seeks to cap the amount of money a lender can finance for litigants at $40,000, as well as cap the amount of interest and fees lenders can charge these consumers at 80 percent of a legal claim.
State Sen. Bill Haine (D- Alton) is sponsoring a pro-industry bill that also seeks regulation, but at this point does not establish caps on how much lenders can charge or finance.
Both Righter’s and Haine’s “Non-Recourse Civil Litigation Funding Act” proposals await hearing in the Senate Judiciary Committee. “Non-recourse funding” means that consumers pay back only if they win a lawsuit.
The lawsuit lending industry – a relatively new type of business – provides consumers with upfront money to cover immediate living or medical expenses while their civil lawsuit is being litigated. These types of loans are usually provided at high interest rates – often more than 150 percent – and then must be paid back to the lender once the plaintiff’s claim results in a settlement or judgment.
Lawsuit reform advocate Travis Akin, executive director of Illinois Lawsuit Abuse Watch, said he is hopeful that a compromise can be reached between the two measures.
He said his biggest concerns with the industry are that consumers end up getting hit with exorbitant interest rates and that the involvement of a third party in civil litigation has the effect of driving up court settlements and judgments.
Sometimes consumers end up owing more to lenders than what was initially offered in settlement of a case, Akin said.
“When you have a third party you ultimately have higher judgments and settlements because you need more money to pay a loan,” he said. “We want to avoid that.”
He said he hoped for a good compromise so that consumers are “not left holding the bag.”
Attempts at reforming and regulating the industry failed to advance during last year’s legislative session. A pro-business bill sought to cap the annual percentage rate that financiers could charge consumers at 36 percent.
An industry bill sought to allow financiers to charge 36 percent “plus a deferment fee not to exceed 3 percent for each month the funding is outstanding with compounding to occur no more often than monthly.”