The mission of chambers of commerce, broadly stated, is to promote and support economic development and the business community. So seldom do people in my position feel the need to speak out against a business entity. However, there is a growing industry in Connecticut that we need to be concerned about that has a business model that is bad for consumers and bad for our state.
Within its own industry this growing business is known as “non-recourse litigation funding.” In plain English — lawsuit lending — venture capital for verdicts.
Companies with hedge fund sized pocketbooks seek out plaintiffs, offering them advances on their potential settlements. The companies make money on the interest they charge the consumer.
A quick Google search pulls up dozens of these such companies, offering “fast money” at “no risk.”
Money now, for a settlement later . . . sound too good to be true? Well of course it is.
This isn’t about the pursuit of justice — it’s about turning a dollar at the expense of vulnerable people, who are often in tough financial situations and in need of cash.
The interest rates that these companies charge on the settlement advances are astronomical — in some cases adding up to 60 percent annually. There are documented cases where people end up owing these companies far more than the settlement they receive. Because plaintiffs don’t have to pay back the advance if they don’t win the case, the lawsuit lending industry can avoid regulations that the government has in place for traditional loans.
And business is booming. Estimates show that there is as much as $1 BILLION is invested in lawsuits across the country at any one time.
And now to make matters worse, these same companies are working to pass legislation in states across the country, including Connecticut, to legitimize their shady business.
The bills that have been proposed in at least 10 states on the surface look to offer consumers protection from this innovative form of predatory lending, but a closer look shows just the opposite.
The Connecticut bill — HB 5419 — offers little to protect consumers, and most notably does nothing to cap the amount of interest that these firms can charge. In some cases these companies are pushing proposals to be able to charge as much as 150 percent interest on the money that is advanced to the plaintiff.
It is admirable that our lawmakers are trying to take on this problem, but the bill that is currently proposed gives credence to this industry, legitimizes their business model and in doing so potentially will harm the state’s consumers more than help to keep them from being preyed upon.
Our lawmakers need to start over and propose real legislation that is not influenced by the very industry that they are trying to regulate. The fox is in the hen house on HB 5419.
The only way justice that will be served is if these companies are forced to curb their practices and stop taking advantage of people in desperate situations. Please do not support this anti-consumer legislation. Vote against HB 5419.
Tony Sheridan is the president and CEO of the Chamber of Commerce of Eastern Connecticut.