JEFFERSON CITY, Mo. (Legal Newsline) - Like Indiana, the state of Missouri seems poised to host a showdown over lawsuit lending regulation in 2015.
On Dec. 1, Rep. Tony Dugger, R-Hartville, pre-filed a bill that seeks to regulate lawsuit lending, the practice in which third-party companies fund litigation in exchange for a portion of a successful recovery. But a national group representing insurance companies is planning to fight the bill.
Dugger’s new bill – Missouri House Bill 26 – would establish the Civil Justice Funding Model Act, which mandates all lawsuit loans, or what he calls “civil justice fundings,” to meet specific requirements.
According to the bill, civil justice funding companies would be prohibited from certain activities, such as paying or offering to pay commissions or referral fees to attorneys, law firms, medical providers, chiropractors or physical therapists for directing a consumer to the company.
The bill also requires “the contracted amount to be paid to the company to be set as a predetermined amount based upon intervals of time from the funding date through the resolution date, and not be determined as a percentage of the recovery from the legal claim.”
Additionally, the bill requires all civil justice funding contracts to contain certain disclosures that are typed in at least 12-point, bold letters and placed prominently within the contract.
Dugger already attempted to introduce these provisions in Missouri House Bill 1569 in January. That bill was referred to the House Committee on Financial Institutions, but died there in April.
Dugger, chairman of the Committee on Financial Institutions, did not respond to requests for comment.
Joe Thesing, vice president of state affairs for the National Association of Mutual Insurance Companies, pointed out that the business community opposed and defeated Dugger’s earlier bill.
He said it will also oppose the representative’s new bill since he feels it still does not do enough to regulate the industry.
“Their legislation, in our opinion, is couched as, this is an unregulated industry, so this regulates the industry,” Thesing said. “But all their bill really does is codify the ability of this industry to continue to charge interest rates that exceed 100 percent.”
“There is no interest rate cap in it, and it does not require these loans to be regulated under the consumer code of the state,” he added.
Thesing said that in February, the business community offered its own lawsuit lending legislation. That bill – Missouri House Bill 1789 – was introduced by Rep. Elijah Haahr, R-Springfield, and would have established the Missouri Nonrecourse Consumer Legal Lending Act.
He said the business community is currently considering another possible response to the reintroduction of Dugger’s bill.
Eric Schuller, director of government affairs for Oasis Legal Finance, one of the largest lawsuit lending companies, pointed out that Dugger’s bill is similar to what Indiana Sen. Randy Head, R-Logansport, introduced in the Hoosier State in 2011.
Schuller said that bill, which Head plans to reintroduce in 2015, also sought to establish new procedures for lawsuit lenders without putting a cap on their loans’ interest rates. He added that these types of bills have already been successful in Maine, Ohio and Oklahoma.
“The bill from Representative Dugger is one of those bills where consumers know what they are getting themselves into, what their financial obligations are,” Schuller said. “There are true notice and disclosures.”
Schuller added that his company and the industry are not opposed to regulation. He contended that they just want to be properly regulated.
“That’s the key word – properly,” he said. “We provide a service to consumers, so we want to make sure that if there are regulations imposed on the industry, we can still operate.”
Sen. Brian Munzlinger, R-Williamstown, introduced his own version of the Nonrecourse Consumer Legal Lending Act in December 2013. That bill was heard by the Senate Judiciary and Civil and Criminal Jurisprudence Committee, but died there in February.
Munzlinger had introduced an earlier bill in February 2013 that sought to “ban consumer loans for the purchase of the proceeds of a consumer’s legal action.” It also died in the Judiciary and Civil and Criminal Jurisprudence Committee.
Munzlinger did not respond to requests for comment.
Todd Mandel, an attorney in St. Louis who primarily practices personal injury law, contended that 30 to 40 percent of his clients seek out lawsuit loans. In his experience, he said, those loans have been vital for his clients.
“Before the industry came about, people would turn to the lawyer, to me, and ask for loans on the cases,” Mandel said. “We’re not allowed to lend out money to clients, but I have clients who aren’t able to work because of their accidents, and they still have bills coming in. These third-party lenders came about and have actually been pretty helpful.”
Mandel explained that so far, Missouri has been receptive to those companies, but new legislation could potentially tighten components of their industry.
In the past several years, attorneys general, courts or regulators in Colorado, Kansas, Louisiana, Maryland, North Carolina, South Carolina and Tennessee have decided that lawsuit loans should be classified as loans and subject to the consumer code in each state. As a result, there would be a cap on their interest rates.
In July, Tennessee became the first state in the country to implement a cap on interest rates charged by lawsuit lenders. According to the new law, lenders must cap their interest rates at 36 percent. They are also permitted to charge an additional 10 percent administrative fee.