Skip to content

Menu

LexBlog, Inc. logo
NetworkSub-MenuBrowse by SubjectBrowse by PublisherJoin the NetworkGet StartedSubscribeSupportContact
Search
Close

Georgia Supreme Court holds litigation advances are not “loans” under state usury laws.

By Gregory C. Cook on November 4, 2018
Email this postTweet this postLike this postShare this post on LinkedIn

Georgia regulates the small loan industry with usury laws like the Payday Lending Act and Industrial Loan Act. But, as the Georgia Supreme Court recently held, these Acts can reach only as far as their texts allow.

In Ruth v. Cherokee Funding, LLC, the Georgia Supreme Court held money advanced by a litigation finance company is not a “loan” under either the PLA or the ILA where the litigant’s obligation to repay depends on the success of her lawsuit. The opinion comes in a state class action suit against litigation finance companies that advanced money to the plaintiffs while their personal injury lawsuits were pending. Under the financing agreements their attorney executed, the plaintiffs were required to repay the funds (plus various fees and interest at an annualized rate of 59.88%) only if they recovered proceeds from their lawsuits. When the litigation finance companies sought to recover the amounts owed under the agreements, the plaintiffs sued alleging, among other things, the agreements violated the PLA and ILA.

On cross appeals, the Georgia Court of Appeals concluded neither Act applied to the challenged transactions, saying they were not “loans,” but merely “investment contracts” due to their uncertain and contingent repayment obligations.

The Georgia Supreme Court agreed. Both Acts apply to “loans,” which as defined must involve an unqualified obligation to repay. However, the Georgia Supreme Court found the financing agreements “involve[] . . . a contingent and limited obligation of repayment”—if the plaintiffs recovered nothing in their lawsuits, they were not obligated to repay. The agreements, therefore, constitute neither a “contract requiring repayment” nor an agreement by which “funds are advanced to be repaid” to meet the Acts’ definitions of a loan.

Depending on the language of their laws, other states may view—and have viewed—litigation financing agreements differently. Litigation finance companies should carefully review a state’s usury laws and relevant court decisions to ensure their business practices comply with them.

The Georgia Supreme Court’s opinion can be found here.

Photo of Gregory C. Cook Gregory C. Cook

Gregory is a partner in Balch & Bingham’s Birmingham office and serves as chair of the Financial Services Litigation Practice Group.  His practice centers on commercial litigation, with a concentration on complex litigation. Since joining Balch & Bingham LLP in 1991, Mr. Cook…

Gregory is a partner in Balch & Bingham’s Birmingham office and serves as chair of the Financial Services Litigation Practice Group.  His practice centers on commercial litigation, with a concentration on complex litigation. Since joining Balch & Bingham LLP in 1991, Mr. Cook has focused his practice in the area of business and financial services litigation, including concentrating on class action defense (he has been involved in defending over 60 class actions). More recently, Mr. Cook has defended a number of actions and class actions arising out of the mortgage and subprime crisis, including matters for loan servicers, lenders, title insurance agents and settlement services providers. Mr. Cook is listed in Best Lawyers in commercial litigation, has been rated “AV” by Martindale Hubbell and was selected by Super Lawyers in Business Litigation.

Read more about Gregory C. CookEmail
Show more Show less
  • Posted in:
    Business and Commercial
  • Blog:
    Southeast Financial Litigation Monitor
  • Organization:
    Balch & Bingham LLP

Call us at 1-800-913-0988 or email sales@lexblog.com.

Facebook LinkedIn Twitter RSS
The Library at LexBlog
  • About LexBlog
  • The Field We Built
  • Library at LexBlog
  • Our Beliefs
  • Our Team
  • Contact LexBlog
  • Disclaimer
  • Editorial Policy
  • Terms of Service
  • Get Started
  • Publishing Solutions
  • Compass
  • Submit a Request
  • Support Center
  • System Status
Copyright © 2026, LexBlog, Inc. All Rights Reserved.
Law blog design & platform by LexBlog LexBlog Logo