South Carolina agency rules lawsuit loans are traditional loans subject to state law

Big news for South Carolina consumers:

Entities that fund litigation in exchange for a piece of any recovery are providing loans, as the term is defined by South Carolina law, a state agency has ruled.

On Friday, the South Carolina Department of Consumer Affairs decided that those companies that conduct such business must comply with state law governing loans. The practice is known as third-party litigation financing, lawsuit lending and litigation funding, among other terms.

Lawsuit lenders have argued that they are not providing loans because they ask for no repayment if the litigation is unsuccessful.

“Given the plain language of the Code and necessity to interpret its provisions liberally to further the protection of consumers, transactions similar to litigation funding have also more recently been determined to constitute loans pursuant to the Code,” SCDCA administrator Carri Grube Lybarker wrote.

“The absence of an unconditional obligation to repay an advance of funds has not dissuaded South Carolina courts and the Department in ruling a transaction is a loan either.”

Lybarker considered how other states are dealing with lawsuit lenders, mentioning Colorado Attorney General John Suthers’ so-far successful lawsuit against Oasis Legal Finance that seeks to treat the company as a traditional lender. The state Supreme Court will decide Oasis’ appeal.

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