DUBLIN, Ga. (Legal Newsline) - Companies like Oasis Legal Finance, which offer lump sums of money to plaintiffs in exchange for a possible payoff, are used to defending the legality of their agreements to state regulators and lawmakers. But now they are facing a challenge from their own customers.
Six individuals who did business with Oasis are suing the company in Georgia, asking for a federal judge to declare the interest rates charged by the company in violation of the lending laws of the state. The plaintiffs, who include a charge of usury, are also seeking class action status.
At issue in the lawsuit, which was originally filed in Laurens County Superior Court but recently removed by Oasis to federal court, is whether the company was licensed to make advances or loans and whether the return on those agreements exceeded the interest rate permitted by the state.
“Georgia law… prohibits interest in excess of 5% per month as usurious. Pursuant to the funding agreements with Plaintiffs for the loans and advances they received, Defendant Oasis used an effective interest rate in excess of 100 percent,” the lawsuit says.
The litigation funding industry is known to some as “lawsuit lending.” Some states regulate funders as lenders, meaning they are subject to state laws setting acceptable interest rates.
Litigation funders, though, argue that their agreements aren’t loans, since they receive nothing if the plaintiff does not prevail in the lawsuit.
Perhaps the most important development for those attempting to regulate the industry came in Colorado where, in 2015, the state Supreme Court sided with the state Attorney General’s Office in its assertion that the agreements are, in fact, loans.
“These transactions create a debt, or an obligation to repay, that grows with the passage of time,” the court ruled.
The South Carolina Department of Consumer Affairs reached a similar decision in 2014, while Oklahoma, Tennessee, Arkansas and Indiana have all passed laws regulating the industry.
Recently, New York Attorney General Eric Schneiderman and the Consumer Financial Protection Bureau brought suit against RD Legal Funding over its agreements with 9/11 first responders and former NFL players.
The complaint against Oasis was filed by its customers on Feb. 1. Among the plaintiffs are Lizzie Davis, who was advanced $1,670 during her lawsuit over an automobile accident, and Pamela Davis, who was advanced $1,760 during her slip-and-fall lawsuit.
The complaint and attached documents do not specify how much each plaintiff ultimately gave to Oasis at the conclusion of their lawsuit, but says it exceeded a 100 percent interest rate.
On May 5, Oasis filed its motion to dismiss the lawsuit, arguing that the plaintiffs’ legal maneuvers violate their original contract.
The Oasis contract required disputes to be brought in Cook County Circuit Court in Illinois and also included a waiver that prevents customers from filing class action lawsuits, the company says.
Also, the plaintiffs’ usury claim must be dismissed because there is no private right of action in Georgia for it, the motion argues. Only the Department of Banking and Finance and the Industrial Loan Commission can bring such a claim, it says.
The forum-selection clause prevented at least one other proposed class action against the company. In February 2015, a Minnesota federal court judge ruled two plaintiffs alleging champerty, which features the funding of a lawsuit in exchange for a portion of the fees, should have brought their case in Cook County.
Documents in the Georgia case show the details of the agreements Oasis reached with the plaintiffs.
For example, Davis received her $1,670 from the company on Oct. 30, 2015. If she had resolved her lawsuit in the next six months, she would have owed the company $2,505 from any proceeds.
The amount owed to Oasis would increase over six more increments until April 30, 2018 – 30 months after the agreement. At that point going forward, Davis would owe the company $5,845.
The company also added fees like a $35 case servicing fee for every six months.
Plaintiff John Suber has the most to lose, having secured six separate “loans” from Oasis totaling $9,320. Each followed a similar schedule as Davis’, with more owed to Oasis because of the amount taken from it.
He took $2,000 on two separate occasions and owed $7,000 from proceeds of his litigation if it was resolved after 30 months for each. A payment from Oasis of $2,200 carried a $7,770 price tag if the litigation was resolved in a settlement or award in his favor after 30 months of that transaction.
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