The director of a group of financing companies warned Wednesday that lawmakers "would eliminate this industry from Indiana" should they approve a measure targeting companies that provide cash advances — sometimes at sky-high rates of return — to people awaiting payoffs in personal injury lawsuits.
The bill sponsored by state Rep. Matt Lehman, passed the Indiana House last week on a 57-39 vote and is now before the Senate. Its key provision would cap at 38 percent the rate of return companies providing such funding to people could claim in Indiana.
Lehman, R-Berne, said he became concerned about what's often called litigation financing after hearing about cases of companies that obtained returns of up to 200 percent from people who received money for them, typically to help them make home or auto payments or foot living expenses.
He said companies providing this type of financing, usually in cases involving auto accidents, falls or product liability, need some level of regulation to prevent potential abuses.
"It really kind of came down to this, everyone agrees — everyone — that someone needs to monitor them because they've kind of been out there doing their own thing, whenever they want, however they want," Lehman said. "They have no one to report to because they're not regulated by any entity."
His measure would also create a regulatory mechanism within the state Department of Insurance that would include standardized contracts clearly disclosing the terms of the financing and fees for the financing.
The American Legal Finance Association strongly opposes the bill, particularly its 38-percent cap, said Kelly Gilroy, executive director of the New York-based group that has 38 member companies that provide such funding.
"As it is currently drafted, it would eliminate this industry from Indiana," she said Wednesday.
Gilroy stresses that the financing her group's member companies provide are not consumer loans. She said the contracts people sign are quite different from loans because there's no guarantee the company will be paid back, customers don't have to put up collateral and, if they can't pay back the money, their credit won't suffer.
Gilroy said $4,000 is the average amount of money members of her association provide for lawsuit financing.
"There's a huge risk to the companies and there's no recourse for them at the end," she said. "The companies get paid out of the proceeds of the case. If there are no proceeds, or not sufficient proceeds, then the company does not get paid back."
Sometimes, the companies are able to negotiate a smaller repayment amount if the judgment in a case is smaller than had been expected, she said.
State Sen. Travis Holdman, a Markle Republican who's sponsoring the bill in the Senate, said he expects the chamber to have a lively and intelligent discussion of the legislation in the weeks ahead.
Holdman and Lehman are members of the executive committee of the National Conference of Insurance Legislators. Holdman said they've both heard from many people that so-called litigation financing needs regulation, including caps on rates of return.
More than a dozen states, including Kentucky, Ohio and New York, are exploring proposals to regulate lawsuit financing, he said.
"I'd really like to see us end up with a cap and get something out this session. We just need to make sure we have some oversight on this to make sure there's no abuse going on in the state," he said.
Holdman said he'll know early next week whether the bill will be assigned to the Senate's financial institutions committee, which he chairs, or the chamber's insurance committee.