TALLAHASSEE – The state legislative director of the Florida National Federation of Independent Business (NFIB) is asking state lawmakers to crack down on lawsuit lending by third parties, calling it potentially a perversion of the legal system.
“Rather than helping injured parties recover losses, the loans discourage plaintiffs from settling out of court, even when they’re unlikely to win at trial while driving up the cost of running a small business,” Tim Nungesser said in a statement.
The Florida NFIB is a state chapter of the national parent organization, which is an advocacy group for small business and tort reform.
On Dec. 12, members of the Civil Justice Subcommittee of the Florida House of Representatives held a workshop to consider imposing stricter regulations on third-party lending to plaintiffs in lawsuits. Nungesser, one of five speakers, told state lawmakers that plaintiffs are put under tremendous pressure to take a case to court even if they are unlikely to win in the hopes of recovering enough money to repay the loan.
“While plaintiff’s attorneys usually don’t get paid unless the plaintiff settles or wins, defendants typically pay their lawyers by the hour," Nungesser said. "The longer a case drags on, the more the small business has to pay, even in cases that are eventually thrown out of court. All it takes is one lawsuit to drive a small business into bankruptcy.”
Calling some of the lending practices “predatory,” Nungesser said in a perfect world, lawsuit lenders would be banned in the state of Florida. He asked subcommittee members for reform.
Thurbert Baker, an attorney with the Dentons law firm in Washington, D.C. and a former Georgia attorney general, called third-party loans to injured plaintiffs “crash cash.” He told the lawmakers that annual interest rates of up to 200 percent on loans can occur, leaving a plaintiff with little or no damages recovery after the lawyer and lender are paid off.
"Consumer lawsuit lenders offer immediate cash to a plaintiff in personal injury lawsuits in exchange for a portion of recovery once a lawsuit is resolved," Baker said. "The question is, is the transaction alone subject to consumer lending restraints and usury laws in a state? Or, as the (lending) industry will probably contend, this is not a loan, but a non-recovery cash advance, meaning the money does not have to be repaid if the plaintiff lawsuit is not successful."
Eric Schuller, president of the Alliance for Responsible Consumer Lending Funding, said loans to injury plaintiffs can be a valuable way to support people going through court cases. He said of the state's workforce, 78 percent live paycheck to paycheck.
“This money is not used to pay attorneys, but is used to keep a consumer whole while he’s going through the legal system," Schuller said. "It’s a valuable choice for families trying to meet obligations (housing, food and car payments) while pursuing claims. Why would a (lending) company put money behind a frivolous case? It doesn’t make sense.”
Schuller said under current Florida law, plaintiff lending deals are not considered loans as there are no payments, no credit checks, no risk to consumer credit, no maturity date and no collection if the consumer loses the case.
Rep. Bob Rommel (R-Naples), chair of the House Subcommittee, announced the committee would consider a reform bill in the coming year.
“We have to make sure Floridians are protected and know what they’re getting into,” he said.
The 2020 legislative session begins Tuesday, Jan. 14.