Tennessee Could be First State to Cap Fees Related to Litigation Funding

Tennessee would become the first state in the country to enact legislation limiting the rate of interest that could be charged by “lawsuit financers” if Gov. Bill Haslam signs recently adopted legislation, according to the National Association of Mutual Insurance Companies, a property/casualty insurance trade association. The group is urging Haslam to sign the legislation.

Colorado, Kansas, Louisiana, Maryland, and North Carolina have determined by court decision, attorney general opinion, or regulation that lawsuit financing should be treated as a loan or form of consumer credit, but Tennessee will be the first state capping the fees that can be charged in these transactions by statute.

Joe Thesing, NAMIC’s vice president of state affairs, said this practice concerns NAMIC because lawsuit financing interferes with the claims settlement process, discourages reasonable settlements, increases litigation costs, and potentially increases litigation.

“All of these can result in higher premiums for insurance consumers,” he noted, adding that the Tennessee General Assembly should be commended for adopting this common-sense approach to regulating the controversial practice of providing money to a party to pursue a lawsuit.

According to Erin Collins, the group’s state affairs director for Tennessee, litigation financers currently have “carte blanche” to charge whatever interest rate they want. This financing practice is currently unregulated in most states including Tennessee, which results in consumers being charged interest rates that can well exceed the original amount of the transaction.

“Capping interest rates will ensure a larger portion of judgments or settlements are preserved for injured parties, rather than paying uncapped interest rates to financers,” she said.

Senate Bill 1360 was approved by the Senate on Jan. 14 and was adopted by the House of Representatives on April 3. The bill provides a regulatory framework for registration and bonding requirements, enforcement by the state attorney general, and a 36 percent annual cap plus a 10 percent administrative fee for a maximum of three years. The fee cap provisions of the bill would not go into effect until 2015.

Source: National Association of Mutual Insurance Companies