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Colorado suing settlement advance companies for high interest rates

Gavel and stryker.

TEXT OF STORY

STACEY VANEK SMITH: There are all sorts of pay day lenders who will give you an advance against your paycheck or your tax return for a small fee of course. Now there are businesses willing take a gamble on the outcome of your personal injury lawsuit. Now those settlement advance companies are now being sued by the state of Colorado.

Colorado Public Radio's Megan Verlee reports.


Commercial: Were you recently injured in an accident? Do you need cash fast?

Megan Verlee: These companies work by evaluating lawsuits. If the case looks strong enough, they pay out against the expected winnings.

Commercial: They advanced me the money I needed so I could pay my bills and they worked out all the details with my attorney.

Here's the question: is that a loan? If you lose your lawsuit, you don't owe anything. Winners, though, have to pay back the money, plus a hefty fee. Colorado's Attorney General John Suthers is suing companies over their charges. Which, if you look at them as annual interest rates, run as high as 200 percent.

John Suthers: Companies are taking the position with us that it's not a loan because if the individual doesn't recover in their lawsuit, they won't have to pay it back. And we believe these are loans because they sound like a loan, look like a loan and smell like a loan.

If these are loans, the fees violate Colorado's interest rate limits. People in the business say they have to charge high fees to cover all the times they back a losing case. Which is what the industry will argue in their own legal battle with Colorado.

In Denver, I'm Megan Verlee for Marketplace.

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