Usurious loans to plaintiffs: An ugly “business”

Happy the man who far from schemes of business, like the early generations of mankind, works his ancestral acres with oxen of his own breeding, from all usury free. — Horace, Epodes

Once again the New York Times provides a thought-provoking story—a story that has me gnashing my teeth. Re-gnashing my teeth, actually. I gnashed originally back when I was working for lawyers.

A bit of background. You’re all aware that there are companies with warm ‘n’ cuddly names like Cash Cow, LLP, that advance/loan money to plaintiffs before the plaintiff’s suit has reached a conclusion; the plaintiff repays the loan from his final settlement.

The Times article focuses on the current fierce lobbying effort to get states to legislate “making it clear that [this] growing industry [this is what they call themselves? an industry?] is not subject to usury limits on interest rates or other state laws that protect borrowers.” I.e., we want a law protecting us so that we can do whatever we want, at any price we want, without regulation or control.

Isn’t there a term for this, i.e., “lawlessness?” Or maybe “loansharkery.” So these companies are demanding that state legislatures writes laws to protect…lawlessness. (I’m shaking my head here, trying to clear out the miasma.)

…About a dozen large companies, and many smaller ones, lend plaintiffs about $100 million a year, generally a few thousand dollars at a time, to cover housing, medical care and other expenses. The loans are repaid from winnings, with costs that can exceed 100 percent a year. [Definitely my emphasis.]

Yeah, that’s how it works. Except Cash Cow LLP strenuously reviews each application and rejects any case that isn’t virtually guaranteed to provide them a big return. And since the lawyer has to sign off on the loan (he’s the one who’ll be writing the check to Cash Cow LLP when he calculates the final settlement dispositions), Cash Cow LLP places a heavy emphasis on the lawyer involved in the suit, his track record at winning such cases, even his celebrity.

So Cash Cow LLP is not anywhere near the kind of financial risk it’s claiming.

I’m having a squirmy reaction to this article, because I’m shocked to be siding with the Chamber of Commerce here. So I’m going to ignore the legislative issue to tell you about the real people I knew who borrowed money from companies like this, under their repulsive contractual conditions, i.e., usury.

Usury. So how does one define “usury?” Is it, like “obscenity,” defined by the one who witnesses it? If so, I’ve witnessed it. Indeed, it was my task to helped at least two clients of “my” law firm with the (usurious) paperwork.

The clients desperately needed the money. We would do our best to help them get jobs or find places to live. We found them therapists, helped them get on Medicaid. A couple of times we even tried to find banks that might give them loans, at normal loan rates. In other words, we made every effort to help them “work their ancestral acres,” i.e., support themselves, at least until their cases were finalized.

But one thing the law firm was ethically bound not to do was directly loan or advance monies to clients. The reason?

Imagine the premise of a huge contingency lawsuit against a municipality, for a major civil rights violation that puts a person in the hospital with serious injuries.

Then visualize this: a slew of lawyers racing to the hospital bed waving retainer agreements and, by the bedside, fighting among themselves, upping the other lawyers’ antes to promise the patient/plaintiff all sorts of financial support. “Go with me and I’ll give ya $2000 a month!” “Yeah? well I’ll top that with $2400 and a trip to Disneyworld!”

Ugh.

Anyway, that’s one reason attorneys can’t loan or advance monies to a client.

Usurious: a loan company that advances $30,000 to a plaintiff incapacitated by a life disaster, at an interest rate of, oh, 40, 50, 70 percent.

Usurer: a company that loans a plaintiff $5000 to help pay for his wedding, forces him to fly to a state where he does not reside in order to collect the check, and then, several years later when the case settles, demands almost $15,000 as repayment.

It’s unseemly, humiliating, ugly and a dozen other bad words.

Something should be done for indigent plaintiffs. Anything besides dropping them into this marsh squirming with obese leeches.

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