Friend? Foe? Loan shark? Settlement loans targeted

Assembly Bill 465, which the committee sponsored, would establish rules for consumer legal funding companies. These companies make high-priced loans to plaintiffs who often are unable to work and are struggling to pay for food, shelter and utilities while waiting years for a settlement or judgment in personal injury lawsuits.

"Right now, this isn’t regulated," Chairman William Horne, D-Las Vegas, told the panel in Carson City. "You’ve got bad actors out there."

Representatives of consumer legal funding companies said regulation would weed out the bad companies.

On the other side, representatives of the Las Vegas and Reno-Sparks chambers of commerce, insurance companies, the Legal Aid Center of Southern Nevada and Financial Institutions Commissioner George Burns opposed the bill.

Opponents argued that the business of making loans to plaintiffs violated the law and should not be legitimized through regulation.

"We think that this (legislation) kind of legitimizes what should be against the law," said Robert Compan, a representative of Farmers Insurance.

Supporters introduced an injured woman who was able to pay bills with help from a consumer legal funding company.

Patricia Parker of Las Vegas appeared in a neck brace and testified about how she was injured in an automobile accident with a taxicab in 2006. She continues to wait for the courts to decide her lawsuit.

Parker described how a consumer legal funding company helped her pay the bills while she underwent four surgeries.

"It has saved my life, basically," Parker said. "They do it from the heart."

On the other hand, Bradlie Baggett said he was victimized by a series of legal funding companies that made loans to him after he sued over the 2003 death of his son.

"He was my soul and strength," Baggett said, choking with emotion twice during his testimony.

Baggett said he borrowed $80,000 in loans from a series of legal lenders and said interest and fees increased the total owed to $1 million.

James Griffin of the legal aid center said Baggett settled for $400,000 but still owes $1 million.

"These people were not my friends," Baggett said. "They are not your friends. They are loan sharks."

The interest rate for legal funding reaches as high as 215 percent, Griffin said.

Legal lending advocates introduced a table that showed the proposed legislation would cap the fee for a $1,000 advance for one year at $800. After three years, the fee would total a maximum of 100 percent of the amount of the loan, bringing the total to $2,000 in this example.

Licensed installment lenders may charge a maximum of 40 percent yearly, but the interest continues to compound until the loan is repaid, according to the table.

Executives with lawsuit funding companies contended that the advances were not loans, but other witnesses disagreed.

If the plaintiff doesn’t win a settlement or judgment, Preferred Capital Funding doesn’t recover the amount of the funding advance, said executive Brian Garelli. He said the fees charged reflect the risk his company takes on the advance funding.

George Ross, a representative of the Las Vegas Chamber of Commerce, said consumer legal lending probably should be prohibited in Nevada. The loans cause plaintiffs to seek higher settlements.

On the other hand, the chairman recalled that a relative worked for an insurance company and felt guilty offering injured individuals less than they should recover, because the company knew the plaintiffs were desperate for cash.

Burns predicted that the legislation would attract a flood of consumer legal funding companies. The companies would establish offices in Nevada, Burns said, because Nevada has no general limit on interest rates, and they could use the Silver State as a springboard to lending to plaintiffs in other states.

The commissioner said that would result in financial division expenses that would exceed revenue from the companies by $104,000 over two years.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.