By Todd Dallas Lamb-

Last week in the Maryland House Judiciary committee, arguments were heard on the Maryland Civil Litigation Funding Act (H.B. 873), a bill that would legalize lawsuit lending in Maryland.

Lawsuit lending is a misleading practice that harms consumers and preys on people when they are at their weakest – such as someone injured in an accident and struggling to pay medical bills. Lawsuit lenders use Internet advertising to target cash-strapped plaintiffs, offering fast and easy access to loans. They give plaintiffs advance payments with the expectation that those plaintiffs will receive a large award from their lawsuit. But while these lenders claim to offer financial help, their fees are often so high that consumers who use their services end up with nothing or – even worse – end up in debt even after receiving their lawsuit award or settlement.

This practice was recently highlighted in a New York Times story excoriating the practice. This piece was mentioned during the hearing on HB 873 by Delegate Luiz Simmons in his withering questioning of the proponents of the bill.

Indeed, in many cases, lawsuit lending can be considered outright loan sharking. Although these lenders may market their services as investments, they are really selling what amount to very-high-interest rate loans. The high rates charged by lawsuit lenders can deplete a court award intended to compensate a victim. While a lawsuit is supposed to be about making an injured party whole, these loans are designed to make lawsuit lenders rich and allow them to walk away with the money. The loans can also lead to inflated court awards because a consumer burdened with debt to a lawsuit lender may be unable to accept a fair settlement.

Lawsuit lending is essentially illegal in Maryland, and with good reason. In August 2009, Oasis Legal Finance, one of the largest lawsuit lending companies in the country, entered into a consent order with the Maryland Commissioner of Financial Regulation in which Oasis agreed to stop doing business in the state and pay a fine of $105,000. The Maryland Commissioner of Financial Regulation issued a Cease and Desist order for Oasis to stop doing business in the state after receiving complaints that the company was offering loans to Maryland consumers without licenses required under Maryland law. H.B. 873 is an effort to legalize the predatory lending model of Oasis and other members of the American Legal Finance Association, which pushed similar bills in seven states last year, including Maryland, and is currently actively lobbying legislatures in at least four states this year.

Lawsuit lending hurts consumers when they are most vulnerable. The only people it helps are predatory lenders seeking to profit by charging outrageously high fees and rates that violate the Maryland Constitution. This bill deserves to die a quick death in committee.

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