Consumer Legal Funding is Not Usurious
Usury is defined in most states as the charging of interest by a lender in an amount which is greater than that allowed by statute.
The concept of usury applies to loans, which are typically paid at a fixed or variable rate over a term. The instant transaction, by contrast, is an ownership interest in proceeds for a claim, contingent on the actual existence of any proceeds, Had respondents been unsuccessful in negotiating a settlement or winning a judgment, petitioner would have no contractual right to payment. Thus, usury does not apply to the instant case.[i]
As is apparent from the use of terms like “lender” and “interest” in the standard definitions, most legislatures intended to have its usury laws apply to loans, not purchases.
Notably, the first element to establish usury is not satisfied in a CLF transaction because CLF transactions are not loans. The non-recourse nature of the transaction also proves that the second element of usury cannot be satisfied because there is no absolute agreement to return the money, only an agreement to turn over the ownership amount to the CLF Company if certain conditions are satisfied.[ii]
A contract is determined to be usurious only if there is a requirement that the money loaned be repayable. If it is payable only upon some contingency, like the winning or losing of a lawsuit, the transaction is not usurious.
Also, unlike a loan, CLF does not provide for demands, monthly or minimum payments or a maturity date. With CLF there is no obligation of repayment of the purchase price. Thus, the funding purchase agreement cannot be deemed to meet the first and second elements of a usurious contract.
[i] O’Farrell v. Martin, 292 NYS 581 [City Ct. N.Y. 1936]
[ii]See, Fikes v. First Fed. Sav. & Loan Ass’n, 533 P.2d 251, 263 (Alaska 1975); Small v. Ellis, 367 P.2d 234, 237 (Ariz. 1961); Teichner v. Klassman, 49 Cal. Rptr. 742 (Cal. Dist. Ct. App. 1966); Ball Electric Light Co. v. Child, 37 A. 391, 392 (Conn. 1897); Kraft v. Mason, 668 So. 2d 679, 684 (Fla. Dist. Ct. App. 1996); Mallard v. Forest Heights Water Works, Inc., 580 S.E.2d 602 (Ga. Ct. App. 2003); Dang v. F & S Land Dev. Corp., 618 P.2d 276, 281 (Haw. 1980); Kettelson, 580 N.E.2d at 189-90; White Water Valley Canal Co. v. Vallette, 62 U.S. 414 (1858) (applying Indiana law); State ex rel. Turner v. Younker Bros., 210 N.W.2d 550, 555 (Iowa 1973); Indian Springs State Bank v. Kelley’s Auto Supply, Inc., 675 P.2d 379, 382-83 (Kan. Ct. App. 1984); Surlott v. Pratt, 10 Ky. 174, 175 (Ky. 1820); Bamburg v. Lavigne, 403 So. 2d 827, 831 (La. Ct. App. 1981); Williams v. Reynolds, 10 Md. 57, 65 (1856); Lee, 526 N.W.2d at 885; Citizen’s Nat’l Bank v. Taylor, 368 N.W.2d 913, 918 (Minn. 1985); Guar. Inv. & Loan Co. v. Stevens, 137 So. 335 (Miss. 1931); Beneficial Fin. Co. of St. Charles, Inc. v. Kitson, 530 S.W.2d 497, 502 (Mo. Ct. App. 1975); Loucks v. Smith, 48 N.W.2d 722, 724 (Neb. 1951); Brown v. Cole, 17 A.2d 536 (N.H. 1941); Dopp v. Yari, 927 F. Supp. 814, 822-24 (D.N.J. 1996); Stuback v. Sussman, 8 N.Y.S.2d 141, 142 (N.Y. Spec. Term 1938); Reeves v. First State Bank, 463 P.2d 340, 343 (Okla. Civ. App. 1969); Hazen v. Cook, 637 P.2d 195, 198 (Or. Ct. App. 1981); Tito Pollice v. Nat’l Tax Funding, LP, 225 F.3d 379 (3d Cir. 2000); Accord State ex rel. Meierhenry v. Spiegel, Inc., 277 N.W.2d 298, 300-01 (S.D. 1979); Lake Hiwassee Dev. Co. v. Pioneer Bank, 535 S.W.2d 323, 325 (Tenn. 1976); Anglo-Dutch Petroleum Intern. v. Haskell, 193 S.W.3d 87, 96 (Tex. Ct. App. 2006);Lowell & Austin, 507 A.2d at 951; Van Dyke v. Commonwealth, 17 S.E.2d 366 (Va. 1941); Hafer, 156 P.2d at 410-11; Val Zimmermann Corp. v. Leffingwell, 318 N.W.2d 781 (Wis. 1982).