Australia has been one of the most accepting markets for litigation funding since its inception. It was one of the first territories to embrace the industry, and for those involved, it has been quite lucrative. An article in Bloomberg Businessweek recently stated that litigation funders in Australia have reported record profits. Yet even with this tremendous growth, many in the third party financing space feel they are just scratching the surface.
On April 28th, The Wall Street Journal did a story about possible state legislation that may impact what the author referred to as the “payday lawsuit lending” industry. According to the story, there are several states looking to cap the rates certain companies charge when they provide funding to plaintiffs (commonly referred to as pre-settlement plaintiff financing). *
In reading the article, it seems that many of the legislators quoted do not understand the basics of lawsuit funding. Legal finance companies take on significant risks, as the funding they provide is generally non-recourse. This means that if the plaintiff’s lawsuit does not result in a favorable outcome, the plaintiff owes the funding company nothing. Furthermore, pre-settlement funding is not a loan as the article describes, but an advance against future proceeds of a lawsuit.
In the past, there has been legislation against legal funding. The practice was even temporarily banned in certain states, including Ohio and North Carolina. Currently, lawsuit lending is legal in all 50 states. The United States Chamber of Commerce has been pushing for legislation to again ban the practice or cap the rates funding companies are allowed to charge. Supporters of legal finance say this would severely harm the industry.
*DISCLAIMER: RD Legal exclusively focuses on post-settlement funding and does not support nor endorse the pre-settlement finance industry.
Written by Lulaine Compere