That’s why it’s time for a closer look at loans in the legal industry, and just how well-protected Marylanders are.

Some companies operating in Maryland offer loans as people pursue a legal claim. The companies say the transactions increase access to justice. In reality, the lenders hope that offering money during the lawsuit will deliver a payday for the lending company.

Maryland already seeks to protect consumers from predatory loans that trap borrowers in cycles of debt by capping interest rates and requiring lenders to be licensed.

Lawsuit-related loans are no different from other consumer loans, and it’s time to make clear our protections apply.

What types of loans exist for people pursuing lawsuits?

The offerings can vary, as do the terms used to describe the loans.

Companies may advertise that borrowers don’t have to pay the money back if they lose their claim, in what’s known as “non-recourse” funding. But these loans may include much higher interest rates than are permitted under Maryland law and generally take a large portion of the victim’s recovery.

Some companies argue consumer lending laws don’t apply to them because they don’t believe lawsuit loans are traditional loans, and so they are not subject to consumer protections.

In one example, a company said state law doesn’t apply to its business because it provides “non-recourse civil litigation funding transactions,” which the company claims are different from loans or cash advances.

We believe they’re wrong, as did the State of Maryland when it reached a consent decree in 2009 that barred the company from doing business in the state.

What can be done to protect consumers?

Legislation is needed to make clear these types of loans are subject to existing consumer protections.

State agencies that currently oversee lending agree these types of loans are subject to Maryland’s law. But codifying that position is an important additional step to protect consumers in case agency personnel or their interpretations change.

Codification would also ease the regulatory burden by requiring active disclosure and compliance via licensing of these businesses. Lenders operating in a grey area of interpretation that do not actively engage with the state make it more difficult for state agencies to hold the businesses accountable for their actions, because consumer complaints may be required to surface the business and the terms of its transactions.

Maryland could further improve the regulatory climate by requiring the consumer or their attorney to provide a copy of the litigation financing contract to the parties in the lawsuit, which would add transparency.

What existing protections are there in Maryland?

Maryland Consumer Lending Laws (MCLL) already require entities that lend consumers $25,000 or less to be licensed by the State, and to cap and disclose the interest rates on those loans.

Making it clear that these protections apply to lawsuit lending companies, so they reveal what they charge consumers, is much-needed transparency and protection for Marylanders.