Next Up, Lawsuit Loan Sharks

By: Phoebe Stonbely


The Times Union recently reported that Attorney General Eric Schneiderman has reached an agreement with Western Sky for charging interest rates up to 355% (“Schneiderman settles with ‘sky’ high lenders”).  Now is the time for Mr. Schneiderman and our elected officials to aim to stop the similarly predatory practice of ‘lawsuit lending.’

Lawsuit lenders offer cash advances on pending lawsuits, often at rates in excess of 100% annually. Any interest rate higher than 16% in New York is considered usury and any rate higher than 25% is a criminal violation, so how do they do it?  They avoid consumer protection laws by claiming their loans are investments, since the consumer only repays if the lawsuit is won. However, once the case is won the consumer can end up owing the entire judgment, or even upside-down in debt to the lender.

Lawsuit lending compromises the integrity of the civil justice system, takes advantage of those most vulnerable, and incentivizes frivolous lawsuits. For these reasons, lawsuit lending is illegal in most nations.  As the Attorney General and regulators shine a light on the corrupt practices of payday loans, they need to subject lawsuit loans to New York’s strong consumer protection laws.  It is the commonsense next step to improve justice and fairness for all New Yorkers.

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