Insurance Industry v. Legal Funding, round two of 2014
Indiana House Bill 1205
"Insurance is my world", Indiana House Representative Matt Lehman told the Insurance Journal in September 2013 (link below). It certainly is. Rep. Lehman has been active on the front lines doing the dirty work of State Farm, Allstate and the US Chamber of Commerce (plus its Institute for Legal Reform) in Indiana and at NCOIL (a national association of insurance legislators). After the failed support for his initiative against legal funding during a summer study in 2013, he is back with a bill he dropped in Indiana this Tuesday for another round. It is a classic bill, clearly designed by insurance companies that have heavy influence in Indiana to stamp out a competitive industry with no consumer complaints in Indiana because of a perceived but mythical threat to the apparently government protected profits of insurance companies.
I hoped that Rep. Lehman got some religion, when this fall he capitulated to some reason and logic by agreeing that lawsuit funding transactions are investments and not loans. The easy kill strategy for the insurance industry has been to classify these transactions as loans, and then they are shoehorned into state interest rate caps that insure the elimination of the product. Apparently, he instead got the brazen idea to allow legal funding companies to charge LESS than licensed lenders in IN.
His bill shows an emboldened and aggressive stance by the insurance lobby. First is the oddity of moving this product under the auspices of the Indiana Dept. of Insurance. Why does this product belong there? Certainly not for the protection of consumers. It can only be for the protection of the insurance companies, who have strong influence in the department.
The name of the bill? The Civil Proceeding Advance Payment Transactions act. Not language ever used before as far as I know to describe the "lawsuit lending" or "legal funding" industry. Seems logical that this language was used to come up with new terms that would slip by any of the monitoring services used by the legal funding industry to detect an adverse bill in time to have the chance to prepare and make public comments.
Key components?
(1) a 25% Lifetime price cap!
(2) disclosure requirement for consumer to inform the court and opposing party of the transaction
(3) The product falls under the oversight of the Department of Insurance
(4) The Department of Insurance retains rules making authority to make modifications to allowed charges
(5) Only one transaction can be made with the consumer, so if the consumer at a later time needs a little more cash, he's SOL.
(6) Use of a form contract, that the department has rule writing authority to alter.
On the price cap, the lifetime aspect is absurd considering that these transactions can take years to pay off. A specialty lender can charge 21% per year, which is still too low for legal funding to exist. But a 25% lifetime cap on a transaction that might last 3 to 8 years is absurd and limits these investments to returns below what a collateralized lender with an absolute repayment requirement and current pay could expect.
The disclosure is intrusive and anti-consumer, and only serves the interest of insurance companies. Lehman may as well have written in the bill that the consumer should have to walk into the courthouse naked to pursue his claim, and notify in advance opposing counsel and the judge of any skin discoloration.
This is a financial services product. Why is Lehman placing it in the hands of the department that is tied closely to the insurance industry that feels this business hampers their power advantage in litigation against consumers? Classic fox guarding the henhouse.
Legal funding companies get further uncertainty that the department can further alter what they charge on the oft chance that someone can give this uneconomic enterprise a go of it?
Why a limit of one transaction per consumer? Sometimes consumers do not need or want all the cash available to them per a legal funding company's underwriting. This seems to provide a limit only for the adversary insurance company.
Department control of a form contract? The law already has pages of onerous required consumer disclosures and attorney consent requirements (and how many financial products require your attorney to review and consent?). The department can on its own initiative just add more? So much for a regulation light centric approach to government in Indiana, governor.
You kind find your way to the bill through this link:
http://iga.in.gov/...
Sources:
http://www.insurancejournal.com/...
http://www.lendingkarma.com/...