Lenders to Those Who Sue Are Challenged on Rates
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Roberta Rancman was having trouble making ends meet after a car accident with a drunken driver sent her to the hospital five years ago. So she borrowed $7,000 for living expenses from two companies that lend money to people whose only asset is a personal injury lawsuit. The companies charged Ms. Rancman rates that would make a loan shark blush. On the other hand, they agreed that she would have to repay them only if she won or settled her injury suit. In 2001, an Ohio appeals court declared the contracts that Ms. Rancman had signed void because the interest was so high. It noted that the lowest possible rate on the larger of the two loans, for $6,000, was at least 280 percent. The Ohio Supreme Court will soon decide the companies’ appeal. The case is the first significant legal challenge to the practices of a flourishing new industry. More than 100 companies nationwide have emerged in the last few years to lend money to people with personal injury lawsuits pending, at rates of 2 percent to 15 percent a month. At any given time, executives of the loan companies said, the industry has more than $50 million in outstanding loans. Many legal experts defend the industry. They say these lenders level the playing field between individual plaintiffs and corporate defendants, allowing plaintiffs to outlast their adversaries’ delaying tactics and obtain bigger settlements or jury awards. Other experts say the companies exploit vulnerable people and encourage or prolong litigation in violation of centuries-old but eroding judicial prohibitions against investing in others’ lawsuits. Ms. Rancman eventually received a $100,000 settlement from an insurance company in her injury suit. But she had second thoughts about repaying the two companies and sued to cancel the contracts she had signed with them. She declined to comment on her suit. Her lawyer did not return a call seeking comment. Robert M. Stefancin, a lawyer for the Interim Settlement Funding Corporation, one of the companies that lent money to Ms. Rancman, declined to say whether the fee was justified. ”I don’t know, and I can’t answer that question,” Mr. Stefancin said. More : query.nytimes.com |