[A] new consumer protection law places new regulations on companies that make high-interest loans to Vermonters who are awaiting the outcomes of their personal injury lawsuits.
The regulations are part of Act 128, the umbrella consumer protection law that Gov. Peter Shumlin signed May 24. Shumlin said in a statement that the regulations “will boost Vermont’s robust system of consumer protection.”
Lawsuit loan companies are similar to companies that offer people a lump-sum payout of their structured settlements. But these companies market to plaintiffs, often in personal injury cases, who may have been waiting a long time to receive a decision or settlement and need to get their money from the case more quickly.
Lawsuit loan companies generally will enter into contracts only with plaintiffs who are expected to win their cases, and they do not require consumers to pay back the loan if they lose, according to Susan Donegan, the commissioner of the Department of Financial Regulation, who testified on the issue in 2015.
The companies came into the spotlight that year, when lawmakers sought to find out if Vermonters were paying unreasonable interest rates as part of these loans. In 2015, the Legislature temporarily banned the companies from operating in Vermont until it could figure out how to regulate them.
Under Act 128, consumer litigation companies will be required to pay a $600 fee and prove their financial stability to the state in order to register with the Department of Financial Regulation. Companies will have to renew their registration every three years.
The new law requires the registered companies to provide more consumer-friendly contracts. Mainly, the contract will need to be written “in a clear and coherent manner using words with common, everyday meanings.”
The contract will also need to clearly disclose the interest rate on the loan, the total amount that must be paid back, and a notification that the person might have to pay taxes on the loan, among other things.
The contract disclosures also must say that the customer can cancel the contract within five days after signing. The disclosure must also tell the person that the lawsuit loan company has no legal power to influence the outcome of the case.
Wendy Morgan, who leads the public protection division at the attorney general’s office, said the state is aware of only a few people who may have used lawsuit loan companies — and the state doesn’t know what interest rates each person is being charged.
A 2015 report provided to the Legislature said a total of 14 companies funded 67 lawsuit loans in 2014, but the attorney general’s office received zero complaints and the Department of Financial Regulation received one. Information about lawsuit loans is available only in “a few states,” according to the report.
Morgan said the new law again allows people to enter into litigation loans, which they could not do after the 2015 law, and helps regulators get information on the interest rates people are charged so the state can figure out whether to impose a cap.
“Not only will we have a better idea of what kind of rates are being charged,” she said, “but also (we will) have a better sense of what’s happening in Vermont because we have no real sense of that at this point.”
