On May 20, 2015, Vermont lawmakers passed a one-year moratorium on what they label as “settlement loan” companies. The move comes amid mounting criticism from plaintiff financing opponents who claim that these companies exploit vulnerable individuals. However, the decision is based more on fear and misinformation than on facts, stripping plaintiffs of an essential resource without fully understanding the industry.
What’s Driving the Ban?
Opponents like Matt Mincieli, a lobbyist for TechNet, argue that plaintiff financing companies prey on people during their most vulnerable moments, charging astronomical interest rates—sometimes over 150%—and leaving plaintiffs with very little once their cases are settled. Mincieli’s view, published in a VTDigger op-ed, paints a picture of an industry built on deceptive practices and a lack of regulation. His argument is designed to stoke fear, playing on the idea that without regulatory intervention, these companies will continue to exploit financially desperate plaintiffs.
But let’s break this down: plaintiff financing is not a loan. It’s an investment made by the funding company, which only gets repaid if the plaintiff wins their case. That means plaintiffs can’t go into debt because of this financing. And the reality is that most plaintiffs seek this funding because they’re in desperate need—they’ve been injured, they’re out of work, or they have mounting medical bills.
Why This Ban Is Misguided
The problem with the Vermont legislature’s decision is that it was based on limited information. The Vermont House passed the moratorium despite only knowing of one Vermont resident who had ever used plaintiff financing. One case was enough for them to block a financing option for all Vermont plaintiffs, many of whom may truly need it.
Plaintiff financing provides a lifeline for people who might otherwise settle their case too early for too little. Without access to these funds, plaintiffs might be forced to accept lowball offers from defendants simply because they can’t afford to wait for a fair settlement. This decision effectively strips plaintiffs of a crucial option, leaving them with fewer financial resources and less bargaining power.
Industry’s Perspective
Eric Schuller, president of the Alliance for Responsible Consumer Legal Funding (ARC), emphasizes that plaintiff financing companies play a vital role in leveling the playing field for plaintiffs. According to Schuller, most people who seek funding have already endured life-altering events, and without financial support, they might be forced into accepting unfair settlements. Schuller, along with others in the industry, advocates for regulation—but not bans. He’s worked with other states to create balanced, effective regulations that protect consumers while still allowing access to necessary funds.
Vermont’s decision, however, takes away this resource without any clear alternative in place. While the state plans to use the moratorium to learn more about the industry, other states have taken a more sensible approach, allowing plaintiff financing to continue while simultaneously studying the industry and crafting regulations.
Conclusion
This temporary ban is a knee-jerk reaction to an issue that requires thoughtful consideration. By restricting access to plaintiff financing, Vermont lawmakers are limiting options for people who are already struggling to make ends meet. The moratorium benefits no one except those who seek to block plaintiffs from receiving the financial help they need while pursuing justice. Instead of outright bans, the industry needs regulations that ensure transparency and fairness while preserving a necessary resource for plaintiffs in need.
