States Eye Limiting Lenders Who Fund Strapped Litigants

Who are these poor who dare to sue?

The legal equivalent of the payday loan is coming under political pressure.

Lawmakers in a number of states are debating whether to put new limits on the burgeoning business of lending money to people involved in lawsuits and collecting when the suits pay out.

Their target isn't the growing industry of making six-figure loans to corporations facing litigation. It is the business of giving money to private individuals often suing over an injury.

Lawsuit-lending outfits like Cash4Cases Inc., LawCash and Atlas Legal Funding bill themselves as lifelines, providing money to down-and-out plaintiffs while their lawsuits move forward. Their business, supporters argue, gives plaintiffs a chance to stay in a lawsuit long enough to get a just result.

But critics argue that the loans—often in the low four figures—encourage unnecessary litigation that bottles up the legal system. They also say that fees amounting to as much as 100% a year are unfair to borrowers.