S 3196Banking & Investments

Courts and Civil Procedure - Procedure Generally - Litigation Lending Agreements

This bill classifies financial advances given to people in lawsuits as loans, subjecting them to state interest rate limits.

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Introduced Apr 3, 2026Committee Senate Judiciary

Plain-English Summary

This bill regulates "litigation lending agreements," which are contracts where a company gives money to a person involved in a lawsuit in exchange for a share of their future legal settlement or award. The legislation classifies these financial advances as loans. It mandates that any amount the person pays back above the original advance is considered interest. Because they are classified as loans, these agreements must follow the state's existing limits on how much interest can be charged, regardless of what the fees are called or if repayment depends on winning the lawsuit.

For younger readers

Sometimes people in a lawsuit need money before the lawsuit is over. A company might give them money now, but the person has to pay back much more if they win. This bill says that this kind of money deal is officially a "loan." Because it is a loan, the companies cannot charge super high extra fees when the person pays them back. The extra money they charge is called "interest," and the state has rules about how much interest a company is allowed to ask for.

Who & Where It Applies

Impacted groups

Civil litigation plaintiffsLitigation funding companiesPersonal injury attorneysDefense attorneysState financial regulators

Impacted communities

All

Constitutional & Fiscal Check

None Likely. The bill regulates commercial contracts and interest rates, which falls well within the state's police power to regulate commerce and protect consumers from usury. It does not implicate free speech, due process, or search and seizure protections.

Estimated cost

None

Estimated revenue

None

Bill Analysis

Both viewpoints

For Progressives

Protects vulnerable, low-income individuals who might be desperate for cash during a lengthy lawsuit from predatory lending practices and exorbitant interest rates.
Ensures that corporate litigation finance companies cannot exploit legal loopholes by renaming their massive fees as "investments" or "use fees" to bypass consumer protection laws.
Preserves the financial compensation awarded to victims in civil suits, ensuring the money goes toward their recovery and needs rather than enriching third-party financial entities.
Capping the potential return on investment for litigation lenders might cause these companies to stop offering advances, removing a crucial financial lifeline for poor plaintiffs who need money to survive while fighting deep-pocketed corporations.
Could inadvertently pressure low-income plaintiffs into accepting lower, early settlement offers from at-fault parties because they can no longer secure the third-party funding needed to sustain a long legal battle.
Focuses strictly on applying existing usury rates rather than creating a specialized, publicly funded or non-profit legal support system to help disadvantaged plaintiffs afford basic living expenses during litigation.

For Conservatives

Upholds the rule of law by closing a loophole that allowed certain financial companies to bypass existing state usury laws simply by changing the terminology used in their contracts.
May discourage frivolous or prolonged litigation by restricting the easy flow of third-party cash to plaintiffs, potentially reducing the burden of civil lawsuits on businesses.
Creates a more uniform and predictable regulatory environment for the lending industry by ensuring all forms of cash advances are treated equally under the state's established interest rate caps.
Infringes on the free market and corporate freedom by imposing strict governmental price controls (usury limits) on voluntary, private contracts between litigation funding companies and plaintiffs.
Limits personal freedom by restricting an individual's ability to enter into a high-risk, high-reward financial agreement of their own choosing, even if they fully understand the terms.
Punishes innovative financial businesses that take on massive risk—since the advances are often contingent on the plaintiff winning—by forcing them to adhere to interest rates designed for traditional, low-risk loans.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 29 additions

SECTION 1. Title 9 of the General Laws entitled "COURTS AND CIVIL PROCEDURE -- PROCEDURE GENERALLY" is hereby amended by adding thereto the following chapter: 9-3.1-1. Legislative findings. The general assembly finds and declares that:

(1) Litigation financing contracts are being entered into where companies advance money to a litigant in return for payment from litigation proceeds at effective annual interest rates far exceeding state usury limits; and

(2) These contracts often bear annual interest rates which exceed one hundred percent (100%); and

(3) These rates are detrimental to the general welfare of the citizens of this state and it is necessary to enact legislation to ensure that litigation-funding advances conform to state laws governing usurious loans. 9-3.1-2. Litigation lending agreement defined. A "litigation lending agreement" (LLA) is any agreement whereby monies are paid to parties to civil litigation (litigants) in consideration for a litigant's agreement to repay these monies (with or without interest, one-time charges, use fees, or any other add-on charges) from the proceeds of the litigation. Not included in the definition of an LLA are advancements of expenses of litigation made by attorneys on behalf of their clients, as permitted by rule 1.8(e) of the Rhode Island rules of professional conduct. 9-3.1-3. Litigation advances considered loans pursuant to state usury law. All payments made by a litigant under an LLA greater than the amount received by the litigant under the LLA shall be considered interest on loans subject to the provisions of chapter 26 of title 6 ("interest and usury") regardless of:

(1) Whether an LLA characterizes itself as a "loan," an "advance," an "investment," an "assignment of proceeds," or any other characterization;

(2) Whether monies to be repaid under the LLA are called "interest," "use fees," or any other term;

(3) Whether the amount received by the litigant under the LLA otherwise exceeds any monetary limit for loans and interest rates falling within the provisions of chapter 26 of title 6; and

(4) Whether the obligation on the part of the litigant to repay monies is contingent upon a particular outcome of the litigation.

SECTION 2. This act shall take effect upon passage.