A Summary of Online Pre-settlement Litigation Funding Legislation

Online pre-settlement litigation funding, or more causally known as online “lawsuit lending,” is a persistent problem affecting litigation and the courts. These companies lend money primarily over the Internet and the ability of consumers, their attorneys, the courts, or even the government to have sufficient knowledge of what consumers are agreeing to when taking one of these loans to fund a lawsuit is almost impossible.[1] The issue that grows from these types of loans is whether lawsuit lenders who do business over the Internet should be regulated and subject to specific disclosure requirements as a result of doing business online.

Modern day lawsuit lending agencies disguise their less than legitimate lending practices by describing their loans as non-recourse investments and will approve any loan online with only a simple disclosure of personal information on a website.[2]  In turn for a non-recourse loan, the companies can raise the interest rates sky high to cover any possible non-recourse loss, sometimes higher than 30% compounded monthly.[3]  Any resulting settlement is then destroyed while the consumer attempts to pay back the high interest rates assessed by the lenders and the personal information they gave to a website is either sold or barely protected by a click-wrap contract, if they are lucky.[4]

Problems with online lawsuit lending range from disclosure of personal information, like Social Security Numbers,[5] to attorney-client privilege disclosure implications from the involvement of third parties.[6] At the end of 2013, cases like S&T Oil Equipment and Machinery Ltd v. Juridica Investments Limited, began addressing these problems, including whether or not online lenders have rights to attorney work-product materials.[7] Attention from state legislatures began to rise as well. Regulation in states like Oklahoma[8] and Texas,[9] as well as Appellate Court litigation in Colorado, specifically Oasis Legal Finance Group, LLC v. John W. Suthers, began to classify these non-recourse loans as actual loans, instead of “investments” as companies like Oasis Legal Finance and Law Cash would prefer to categorize them.[10] National attention has been growing on this issue thanks to organizations like the U.S. Chamber of Commerce, which have worked on issues like litigation reform and regulation of the lawsuit lending agencies.[11]  This is an issue that is not easily solved, but one that must continue to be regulated; online consumers deserve better protection from these lenders.