Last week, the largest national consumer legal funding company, Oasis Legal Finance, announced that it is leaving Tennessee in what is expected to be an exodus of all the national consumer legal funding companies after the insurance industry triumphed in pushing a bill through the Tennessee General Assembly that makes operating in Tennessee too risky and too expensive for legal funding companies.
In a bill that was short on consumer protections and long on protecting the insurance industry from another industry it did not like, the U.S. Chamber of Commerce pushed SB 1360 through the Tennessee House with only 2 votes to spare.
Consumer legal funding allows consumers that are battling with insurance companies (over claims they have for injuries suffered at the hands of defendants represented by these insurance companies) to sell a small fractional interest in the proceeds of their legal claim. These sales happen when consumers consult with their attorneys, and are advised that they should persevere in pursuing their claims versus taking low current settlement offers. Consumer legal funding companies provide these consumers with an alternative economic option to taking immediate settlements that their attorney advise are not in their interest.
Naturally, State Farm, Allstate, USAA and the P&C Insurance Industry in general (pile on industry trade groups NAMIC and PCIAA) are not fans of this product, and have mobilized their large entrenched lobbying force - including the resources of the U.S. Chamber of Commerce - to drive legal funding out of the states where they have clout. They have done this in Tennessee through the adoption of an onerous bill that has anti-business provisions that the U.S. Chamber of Commerce member companies would never want to be subject to themselves.
The link below to the Insurance Journal explains more about the bill the U.S. Chamber of Commerce and the insurance lobby pushed through the Tennessee General Assembly.
The article does not detail all of the poison pill provisions implanted in the bill to harm the industry the Big Insurance companies do not like that are meant to regulate consumer legal funding out of business. The U.S. Chamber of Commerce and Big Insurance made sure to include more than just one poison pill in the bill. The one that is most striking, considering that it comes from a "pro-business" lobbying group, and should be obvious to anyone with a finance background that it is meant to harm and not help anyone, is the anti-assignment provision.
If you are Starbucks, you need a supply of coffee beans. If you are Borders, you need a supply books. If you are Walmart, you need a supply of a lot of cheap junk from China. And if you are a consumer finance company that purchases fractional interests in potential litigation proceeds, (like say a legal funding company would), you need access to lower costs of money. To get that money source, you need to be able to assign the assets you own so that the lender will feel secure and give you a bank line. Anyone with banking experience should understand this.
So who does the anti-assignment provision in the U.S. Chamber of Commerce sponsored legal funding legislation favor? The consumer? Would a consumer be helped if the consumer's supplier of legal funding had its cost of capital unnecessarily increased because it could no longer access money from banks? Do coffee drinkers benefit when the cost of coffee beans rise?
A very hard to follow argument is made during this Tennessee Senate floor discussion as to why this provision is sound.
The concept that assignment is not needed because these transactions are non-recourse to the consumers is, of course, nonsense. Since it does not help legal funding companies or consumers, the only true purpose of this provision is to hamper the ability of legal funding companies from accessing capital to purchase small legal claims from Tennessee consumers. It only helps the powerful insurance companies run a competing business model out of the Tennessee, and deny Tennessee consumers access to an alternative financial product.
And these Tennessee consumers are not some small fraction of society. They are comprised of the roughly half of the U.S population that does not have $800 in savings, or enough to make it through a 6 month financial emergency.
More on the start of the exodus of legal funding companies from Tennessee can be found at: http://www.insurancejournal.com/...