H7751 adds a new chapter to Rhode Island’s courts and civil procedure statutes that treats litigation lending agreements (LLAs) as loans for purposes of the state’s usury law (Title 6, chapter 26). It defines an LLA broadly — any arrangement that advances money to a civil litigant in exchange for repayment from litigation proceeds — and expressly excludes routine attorney expense advances authorized by Rhode Island Rule of Professional Conduct 1.8(e).
The bill’s operative rule: any payment by a litigant that exceeds the amount advanced is treated as interest and therefore falls within chapter 26 regardless of contract labels, contingency, or the form of the transaction. That recharacterization removes several common defenses funders use (labels like “purchase,” contingency language, and non-loan structuring) and could force out-of-state or institutional funders to restructure or exit the Rhode Island market.
Compliance officers, litigators, and funders should note the immediate-effect clause and the uncertainty it creates for existing financing arrangements.
At a Glance
What It Does
The bill defines “litigation lending agreement” broadly and declares any payment above the amount advanced to be interest subject to Rhode Island’s usury statute (Title 6, chapter 26). It invalidates contractual label-based defenses by specifying that characterization, terminology, contingency, or dollar thresholds do not exempt an agreement from usury treatment.
Who It Affects
Commercial litigation funders, private investors who buy case proceeds, plaintiffs who accept funding, and litigators who advise clients on funding arrangements. State regulators and the attorney general will also see these agreements fall within existing usury enforcement tools.
Why It Matters
The change collapses many litigation-finance products into the regulatory scope that governs consumer and commercial loans, exposing high-cost advances to usury caps and remedies. That shifts legal risk from plaintiffs to funders and could alter access-to-justice dynamics if certain funders cease offering advance products in Rhode Island.
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What This Bill Actually Does
H7751 starts by stating why the legislature views the problem as urgent: it cites observed effective annual interest rates that can exceed 100% and declares those outcomes harmful to Rhode Island residents. That legislative finding is short but functionally important because it signals judicial interpreters how the statute should be read—courts tend to treat findings as evidence of legislative purpose when construing ambiguous provisions.
The bill’s definition section is deliberately broad. Any agreement where money is paid to a litigant in exchange for a promise to repay from litigation proceeds qualifies as an LLA, and the definition captures add-ons — interest, one-time fees, “use” fees, or other surcharges.
The only express carve-out is for advances of litigation expenses made by attorneys consistent with Rhode Island Rule of Professional Conduct 1.8(e); third‑party funders and investors are outside that exemption.Most consequential is the recharacterization rule: the bill says any payment by a litigant that exceeds the amount advanced counts as interest for purposes of chapter 26 of Title 6. It then lists four categories that cannot be used to avoid that treatment: (1) how the agreement labels itself; (2) what the contract calls the monies being repaid; (3) whether the money exchanged exceeds monetary thresholds otherwise used to categorize loans; and (4) whether the obligation to repay is contingent on a litigation outcome.
In practice, that undercuts common funder strategies—structuring transactions as purchases of proceeds, using contingency-based repayment triggers, or relying on out-of-state labels—to evade state usury limits.The act takes effect on passage. The text does not expressly address retroactivity, transition rules for existing agreements, or enforcement mechanics unique to litigation funding; instead, it folds LLAs into the existing body of usury law, leaving remedies, penalties, and enforcement procedures to chapter 26 and to courts' application of that chapter to these newly encompassed transactions.
The Five Things You Need to Know
The bill defines a “litigation lending agreement” (LLA) to include any advance to a litigant repaid from litigation proceeds, including agreements with add-on fees or one‑time charges.
The statute excludes attorney-funded litigation expense advances that comply with Rhode Island Rule of Professional Conduct 1.8(e) but does not exempt third‑party funders or investors.
Any payment by a litigant that exceeds the money advanced is treated as interest and is therefore governed by Title 6, chapter 26 (the state usury law).
The law bars avoidance strategies by specifying that labels, repayment terminology, dollar‑amount thresholds, or contingency on litigation outcomes do not prevent characterization as a loan.
The act takes effect upon passage, meaning new agreements post‑enactment are immediately subject to the rule; the bill is silent about explicit transition or retroactivity for preexisting contracts.
Section-by-Section Breakdown
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Legislative findings and purpose
This short section lists the legislature’s factual premises—high effective annual rates in some litigation financing transactions and related consumer harms—and declares a need to subject such transactions to state usury law. Practically, those findings provide interpretive context: courts will likely view the statute through a consumer‑protection lens, which can affect narrowly applied doctrines (for example, unconscionability or public‑policy exceptions) when judges assess agreements the text otherwise leaves ambiguous.
Definition of ‘litigation lending agreement’ and attorney carve‑out
The bill adopts a capacious definition: an LLA covers any payment to a litigant where repayment (with or without identified interest or fees) is tied to litigation proceeds. By enumerating that add-ons, one‑time charges, and use fees fall within the definition, the drafters close loopholes funders have used to argue they’re selling a contingent interest rather than making a loan. The single explicit exemption applies to attorney advances of litigation expenses under Rule 1.8(e), preserving ordinary law‑firm billing and expense-advance practices while targeting third‑party commercial funders.
Recharacterization as loans under Rhode Island’s usury statute
This is the operative provision: any payment above the advance is ‘interest’ and therefore subject to Title 6, chapter 26. The provision lists four non‑exhaustive categories to prevent semantic or structural evasion—labeling, naming of charges, monetary threshold workarounds, and contingency clauses all fail as defenses. For compliance teams, the practical upshot is that contract form matters less than economic substance: if a transaction returns more than the advance, it will be analyzed under existing usury rules.
Effective date
The act takes effect upon passage. Because the bill does not include an express retroactivity clause or transitional provisions, courts will need to decide how (and whether) to apply the statute to agreements executed before enactment, and regulators will have to determine whether enforcement actions will target only new contracts or reach existing ones.
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Who Benefits
- Litigants (plaintiffs and defendants) who accept third‑party funding: they gain statutory protection against financing arrangements whose effective rates may be treated as usurious, potentially reducing exposure to excessive repayment obligations and enabling rescission or other remedies under chapter 26.
- Consumer‑protection advocates and the state attorney general: the bill brings litigation finance into the remit of existing usury enforcement tools, giving regulators clearer footing to investigate and pursue violations.
- Small‑claim and individual plaintiffs with meritorious but underfunded claims: by limiting predatory pricing, the bill aims to preserve fairer financing terms for individuals reliant on outside capital to pursue litigation.
Who Bears the Cost
- Commercial litigation funders and investors: their common business models (purchases of proceeds, contingency‑tied repayment) will be re‑characterized as loans subject to statutory interest caps, compliance costs, and potential civil penalties.
- Out‑of‑state funding platforms and secondary purchasers: they may face enforcement risk when their Rhode Island counterparties or litigants are involved, and may have to cease providing products to Rhode Island residents or restructure deals.
- State regulators and courts: folding LLAs into existing usury law likely increases enforcement workload and litigation over characterization, retroactivity, and remedies, which could require additional agency resources or judicial attention.
Key Issues
The Core Tension
The central tension pits protection against exploitative, high‑rate litigation financing (and the state’s interest in enforcing usury limits) against the risk that strict recharacterization and enforcement will shrink or eliminate financing options that enable litigants—especially individuals and small businesses—to press meritorious claims they could not otherwise afford.
The bill resolves a drafting dodge—labels don’t control economic substance—but leaves significant implementation questions unanswered. The text folds LLAs into chapter 26 rather than creating tailored standards, so critical details (exact remedies, whether a high‑return contract is void or simply subject to reduced recoverable interest, and how trebled damages or fee shifting under existing usury provisions apply) will be litigated under the general framework of Title 6.
That litigation will determine whether the statute produces rapid corrections of predatory pricing or merely a new line of expensive litigation over contract recharacterization.
Cross‑border enforcement poses a practical challenge. Many litigation funders operate out of state (or abroad) and use choice‑of‑law, forum‑selection, and arbitration clauses to limit exposure.
The statute’s language applies to agreements with Rhode Island litigants, but courts and regulators will need to test how effectively Rhode Island can reach entities operating outside its borders. Funders may instead pivot to alternative structures—equity‑style investments in cases, assignment purchases structured to minimize measurable ‘‘interest,’’ or non‑recourse arrangements that exploit gaps the statute does not expressly close—prompting new litigation and regulatory responses.
The other major trade‑off is access to justice. If high‑cost funders withdraw from the market rather than accept statutory caps, some plaintiffs may lose a practical funding source for meritorious claims.
The statute protects against usurious returns but does not create a substitute financing market. Courts, regulators, and policymakers will likely need to monitor whether the net effect is reduced predatory pricing or reduced financing availability for lower‑value—but socially valuable—claims.
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