Was a cash advance against a Louisiana lawsuit a consumer loan if repayment depended on recovery?

Plain-English summary

Louisiana's financial institutions commissioner asked whether a company that advanced living-expense money to plaintiffs in exchange for priority rights to lawsuit proceeds was making consumer loans. The company argued its funding was not a loan because repayment depended on the plaintiff recovering money. The Attorney General disagreed: the advance and assignment created a debt, even though payment was suspended until a successful resolution.

The opinion focused on advances for personal, family, or household purposes under the Consumer Credit Law. It drew on the Civil Code's definitions of obligations and conditions and concluded the described pre-settlement funding was subject to that law. The AG did not calculate a rate or decide a licensing application in this opinion.

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Was repayment contingency enough to keep an advance outside the loan law?
The AG said no. He treated the plaintiff's agreement to assign priority rights in recovery proceeds as an obligation despite the uncertain outcome of the case.

What made this a consumer-loan question?
The company advanced funds for litigants' personal, family, or household expenses, the purposes identified in the loan definition quoted by the AG.

Did the opinion address a specific company?
Yes. It analyzed Future Settlement Funding Corp.'s described practice of advancing money in exchange for a lien on a plaintiff's claim.

Background and statutory framework

The opinion applied the then-current consumer-loan definition in LSA-R.S. 9:3516 and the Civil Code's treatment of obligations and suspensive conditions in C.C. Art 1756 and C.C. Art 1767. The AG reasoned that a contingent duty to repay from a recovery remained a debt for this arrangement.

Citations and references

• LSA-R.S. 9:3516
• C.C. Art 1756
• C.C. Art 1767

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/01-0160

Original opinion text

October 11, 2001
OPINION 01-160

OPINION 01-160
John D. Travis, Commissioner 61-2.1.1 LAWS – Fair Trade – Consumer Fraud Office of Financial Institutions We conclude that the advancement of funds to a
P. O. Box 94095
plaintiff contingent upon recovery creates a debt
Baton Rouge, LA 70804
and is therefore a consumer loan as defined in the
Louisiana Consumer Credit Law.
Dear Commissioner Travis:

This office is in receipt of your opinion request wherein you ask if the practice of advancing funds to Louisiana litigants constitutes a “consumer loan” as defined in the Louisiana Consumer Credit Law. (LCCL), LSA-R.S. 9:3510 et seq. The Office of Financial (OFI) Institutions licenses and regulates entities that make “consumer loans”. The LCCL defines a consumer loan as:

“. a loan of money or its equivalent made by a supervised financial organization, a licensed lender, or a lender in which the debtor is a consumer, and the loan is entered into primarily for personal, family or household purposes and included debts created by the use of a lender credit card, revolving loan account, or similar arrangement, as well as insurance premium financing… LSA-R.S.
9:3516

Future Settlement Funding Corp. (FSF), a Nevada corporation, is involved in pre- settlement financing. FSF is in the business of providing substance funds to litigants in order that injured individuals are able to pay bills and support families while pursuing a lawsuit. The funds advanced are made for “personal, family, or household purposes and are advanced only after FSF has made a determination that the litigant has a case of “clear liability, documented damages, and adequate insurance coverage”. FSF agrees to advance funding in exchange for a lien on the litigant’s case. Because repayment of the funds is contingent upon the plaintiff’s receipt of money from the claim, FSF argues that the advance of funds is not a “loan”.

There is scant Louisiana jurisprudence on this issue. In Elston, Prince & McDade, Inc. v. First State Bank of Plain Dealing, 140 So. 510, (La.App. 2Cir. 1932) the court distinguished between a loan and a deposit declaring that a loan is a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which he borrows.

Page 2

John D. Travis, Commissioner
OPINION 01-160
Page 2

More recently, the Colorado Supreme Court addressed the issue in the case of State, ex rel Ken Salazar v. The Cash Now Store, Inc., Docket No. 00SC489; decided 9/10/2001. The State of Colorado sued Cash Now Store, Inc. for making “loans” in violation of the Uniform Consumer Credit Code (UCCC). Cash Now entered into contracts with consumers under which it would advance a sum of money in return for an assignment of the individual’s right to receive state or federal tax refunds. The refunds had been independently determined to be due, but not yet payable. Colorado argued that the terms of the contract were usurious and in violation of the UCCC. The Colorado Supreme Court ruled that the advancing of funds for consumer purposes constitutes a “loan” under the UCCC because they create a debt.

The Louisiana Civil Code provides that an obligation is a legal relationship created when the obligor (or debtor) is bound to render a performance to another, called the obligee (or creditor). (C.C. Art 1756) An obligation may be conditioned on an uncertain event. If the obligation may not be enforced until the uncertain event occurs it is suspensive. (C.C. Art 1767)

Applying the provisions of the Louisiana Civil Code to the question at hand, an obligation (or debt) is created when FSF contracts with the litigant for the advancement of funds. In exchange for the advance, the litigant is bound to assign priority rights of the anticipated recovery in favor of FSF. An obligation is created even though the obligation to repay the debt is suspended until the case is successfully resolved,

It is therefore our opinion that the advancement of funds to a litigant by FSF creates a reciprocal obligation, or a debt, on the part of the litigant. Because the litigant is bound to assign priority right to the proceeds of the litigation and the funds are repaid at the time the case is resolved, we conclude that the advancement of funds is a “loan” subject to the Louisiana Consumer Credit Law.

Yours very truly,

RICHARD P. IEYOUB
ATTORNEY GENERAL

BY:________
ISABEL WINGERTER
ASSISTANT ATTORNEY GENERAL

IW:spa

Page 3

OPINION 01-160

61-2.1.1 LAWS – Fair Trade – Consumer Fraud

LSA-R.S. 9:3510; 9:3516(14); C.C.Art.1756; C.C. Art. 1767

We conclude that the advancement of funds to a plaintiff contingent upon recovery creates a debt and is therefore a consumer loan as defined in the Louisiana Consumer Credit Law.

John D. Travis, Commissioner
Office of Financial Institutions
P.O. Box 94095
Baton Rouge, LA 70804

Date Received:
Date Released: October 11, 2001

ISABEL WINGERTER
ASSISTANT ATTORNEY GENERAL