Lawsuit Loans - Regulation Required

In today's NY Times, Benyamin Appelbaum continues his brilliant series on lawsuit loans. Today's article - Lawsuit Loans Add New risk for the Injured - details abuses by this niche market industry. Readers of this blog will recall four previous posts here, here, here, and here.

Lenders argue that they should not be covered by existing lending laws because borrowers don't repay the loans unless they recover in their suits. Some states are fighting back. Colorado recently filed suit against two lenders - Oasis and LawCash. From the story -

“It looks like a loan and smells like a loan and we believe that these are, in fact, high-cost loans,” John W. Suthers, the state’s attorney general, said in a recent interview. “I can see a legitimate role for it, but that doesn’t mean that they shouldn’t be subject to regulation.”

"High-cost" is a real understatement. In fact, according to a survey by the Center for Public Integrity, some of these loans appear to accrue interest at the rate of 100% annually plus fees. The lenders, through their industry spokesman, argue that these are risky loans because the plaintiffs (the injured) may never recover. This is a disingenuous argument. As discussed in previous posts, these loans are carefully vetted by the lender (or investor if you will) before one dime is sent to the injured plaintiff.

How big is the market for these loans? Just consider that the industry has hired a spokesman. That's a pretty good indication that this market has reached critical mass and is ready for national regulation.