Legal financing industry

As of 2011 the industry was lending plaintiffs over $100 million a year and remained unregulated in most states.^[1] Commentators have noted that the industry is free to ignore laws that protect consumers who borrow from other kinds of lenders. The industry, however, asserts that they are not lenders because plaintiffs are not required to repay the money if they lose their cases.^[1] The industry refers to the transactions as investments, advances, financing or funding, as opposed to loans.^[1] This is an argument that has persuaded regulators in many states, including New York, that lawsuit lenders are not subject to existing lending laws.^[1] The companies and lawyers who support the industry have also lobbied state legislatures to establish rules like licensing and disclosure requirements.^[1]

In 2003, the Ohio Supreme Court struck down a legal financing agreement. A legal financing company advanced $7,000 to a woman injured in a car accident. The woman prevailed, and the company was allowed to claim over $30,000 of her future winnings. The court refused to allow this, noting that an "intermeddler is not permitted to gorge upon the fruits of litigation".^[2] This decision was superseded five years later, when the Ohio General Assembly passed legislation that made lawsuit funding legal.^[3]

The industry has obtained lobbying victories in many other states. In Texas, the industry fought a bill introduced in 2005 that would have subjected litigation financing to the same standards as loans.^[3] The bill was ultimately defeated. There was similar success in Ohio, where a bill legalizing lawsuit lending passed in 2008 with little or no opposition.^[3] In 2009, the industry also defeated efforts by Maryland legislators that would have reined in lawsuit funding.^[3] Maine and Connecticut allow litigation funding by statute, and similar legislation is pending in Kentucky. Furthermore, courts in Texas, Florida, New Jersey, Mississippi, Massachusetts, North Carolina, South Carolina, and New Hampshire have allowed litigation funding contracts.^[1]

• Legal financing
• Legal defense fund
• Settlement (litigation)
• Lawsuit