While Illinois legislators haven't been able to agree on how to regulate the lawsuit lending industry, some companies conducting business in the state have turned to a voluntary registration program before legislation requires they do so.
Lawsuit lending, a relatively new financial tool for consumers, provides loans to litigants to help cover their medical and living expenses while a case is playing out in the courts.
Critics say 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. Lawsuit 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.
Competing proposals that have been introduced in previous legislative sessions would either cap funding and interest rates in effort to protect consumers, and conversely another bill that would favor the lending industry.
Some companies are going ahead and voluntarily registering under the Consumer Installment Loan Act (CILA) through the Illinois Department of Financial and Professional Regulations.
“Lawsuit lenders are not regulated under act by the Illinois Department of Financial Regulations, however some have voluntarily requested to be placed under the Consumer Installment Loan Act,” Terry Horstman, spokesperson for the Illinois Department of Financial and Professional Regulations told the Record.
“The department has recognized them under CILA and what that allows for small consumer loans. Essentially it’s a loan where interest is charged to an APR exceeding 36 percent with an amount financed of $4,000 or less.”
Applications for the voluntary registration under CILA, are processed by the Division of Financial Institutions, Consumer Credit Section. It is responsible for licensing and regulating consumer companies and services.
For a lawsuit lender to voluntarily file with the Illinois Department of Financial and Professional Regulations it can fill out an application that is available on its website.
The state of Vermont recently passed a lawsuit lender bill requiring lenders to post a security such as a surety bond or letter of credit. Companies there must also pay a licensing fee and provide certification as well as have a registered agent with the state.
The Illinois Department of Financial and Professional Regulations website allows individuals to search if a lawsuit lender company is registered with the department under CILA.