Many Republicans in the Tennessee General Assembly have been waging a war on themselves for awhile to prove that they really do not have free market/free enterprise/anti-regulation principles, or at least that those principles are for sale to big donors. In the case of HB 1242, which addresses the fate of the lawsuit funding industry in Tennessee, we will see tomorrow which Tennessee State Republicans are for sale. In this instance, the buyers are the US Chamber of Commerce and Big Insurance. Some may say that the US Chamber of Commerce's money is the sole reason that Republicans control the Tennessee General Assembly, so selling these principles for control might be a rational trade.
Ironically, the US Chamber of Commerce purports to be for free markets and unrestricted free enterprise, and actively accuses others of using regulation and legislation to harm small businesses and these noble principles. Yet, they show no remorse when using these tactics on smaller businesses that they think infringe on the franchises of their stakeholders.
Many Tea Party Republicans believe in these principles, too. And would not think that the government should have a say in whether you can sell an asset you own. Tennessee HB 1242 will be a good way for them to see which of their legislators agree with them in actual practice.
HB 1242 is expected to come down to a floor vote tomorrow in the Tennessee State House. Working poor consumers who have a pressing financial need now because of an injury will be banned from selling a portion of their legal claims. The U.S. Chamber of Commerce, on behalf of its Big Insurance board members, drafted the legislation heading to the Tennessee House floor tomorrow, and have ignored the input and comments of the local legal funding industry because they appear to control many of the Tennessee State House Republicans.
The legal funding industry supports consumer protection regulation, and is for moving from an unregulated industry to one that is regulated. HB 1242, however, has been crafted by the Big Insurance companies that are in adverse litigation with the consumers they claim their bill protects, and is designed to ban legal funding outright in Tennessee so that consumers can not decide for themselves whether selling a portion of their legal claim makes sense for them.
Keep in mind that legal funding companies have been operating safely in Tennessee since as early as 1999, and the State has not fielded complaints from consumers.
These features of HB 1242 will regulate legal funding companies out of business:
o Tennessee HB 1242 prohibits any legal funding provider from obtaining necessary bank financing.
o Tennessee HB 1242 has a rate cap (yes, Tennessee State Republicans and the US Chamber of Commerce supporting price controls) that will put legal funding companies out of business. Due to the high cost of capital legal funding companies have and the high loss rates they incur, the HB 1242 price controls will put both large and small legal funding companies currently operating in Tennessee out of business in Tennessee. The legal funding industry offered a rate structure that would provide for consumers to have an option to pay an even lower rate than HB 1242 allows if the consumer made regular monthly payments, but the bill sponsor rejected this overture.
Besides these anti-free market provisions, the US Chamber of Commerce added these other unusual, industry adverse features generally not found in most business contracts to insure that the legal funding industry cannot operate in Tennessee:
o Most business contracts include a paragraph that stipulates if an error does not materially change the nature of the contract, the contract is still enforceable. But HB 1242 stipulates that any error (which would include typos) makes the agreement unenforceable by the legal funding company; this standard does not require knowledge or intent.
o Tennessee HB 1242 stipulates that any and all liens are superior to a legal funding company lien. This is highly unusual. So a consumer could assign a lien the day before settlement to his Aunt Martha, and Aunt Martha would get paid before and have priority over the legal funding company. Legal funding companies would then also be precluded from filing liens with the state of Tennessee under UCC law.
o Tennessee HB 1242 prohibits buyouts. This eliminates the possibility that the consumer who finds a better price or a lower rate with another company can renegotiate the terms with the other funding company to save money.
Why would Big Insurance companies promote regulating an industry out of existance? Simple. The Big Insurance companies are concerned that consumers that use legal funding as a stop gap for cash may not be as willing to take a low early settlement offer from the defendant's Big Insurance company than consumers who do not have access to this product.