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John Bair
John Bair
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Lawsuit Funders May Soon Have to Make Their Transactions Known

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Our purpose for founding the Bairs Foundation was to give plaintiffs a fair funding alternative when they need financial help during litigation. We couldn’t sit idly by while the non-recourse industry, notorious for their staggering interest rates, continued to profit from families in need. In addition to shaking things up with our 7% simple interest model, we support a regulatory environment that brings transparency, disclosure and fairness on contracting to the consumers of this type of litigation loan.

new laws about litigation loans

A recent move by Senate Judiciary Committee Chairman Chuck Grassley (R-IA) highlights how trial lawyers are vulnerable to attack by leaving the litigation finance industry unregulated. On May 10, Grassley introduced the Litigation Funding Transparency Act of 2018, which would require third-party litigation funders to disclose whether they advanced money to class action plaintiffs under an agreement that would allow the companies to collect interest on the recovery.

When funding companies are required to be transparent, Grassley argues, they also have to be accountable. “Because the existence and terms of these agreements lack transparency, the impact they are having on our civil justice system is not fully known,” he said. “It’s vitally important to our civil justice system that litigation decisions aren’t unduly influenced by third parties.”

While increased transparency sounds like a no-brainer, it is possible that this bill may jeopardize the future of litigation funding. It’s one more way to regulate the availability of plaintiff funding, a necessary option to help plaintiffs see their lawsuit through to its end. The changes proposed in this bill could end up being a deterrent for funding, and that would be advantageous for defendants and corporations with deep pockets, but harmful to their opponents (plaintiffs).

This bill follows in the footsteps of a 2017 mandate by the U.S. District Court for the Northern District of California, which requires the automatic disclosure of third-party funding agreements in proposed class-action lawsuits. Also last year, the U.S. Chamber of Commerce and 28 other organizations sent a letter requesting an amendment to the Federal Rules of Civil Procedure. Their aim is to bring litigation funders out of “the shadows” and to identify “a real party in interest that may be steering a plaintiff’s litigation strategy and settlement decisions.”

As an outlier in the industry, we understand the need for some regulation. For most attorneys today, they feel that litigation funding is a sketchy field. For-profit, non-recourse companies frequently take advantage of plaintiffs who are at the end of their financial rope, often tacking on staggering compound interest to their advances. Transparency and fairness is needed.

It’s critical that the civil justice community finds a way to balance giving plaintiffs some consumer protection around these agreements, with access to funding that is so often required in order to make justice a reality for plaintiffs.

 

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