The 4 Groups Who Want to Regulate Legal Funding

Originally Published July 13, 2015

We'd like to introduce you to the four interest groups involved with plaintiff financing. These are the people most concerned with - and affected by - legislation in states like Indiana, Arizona, and Tennessee. Some want strict regulation, some want loose, some would love it if there were no plaintiff financing to regulate, period. Some have lots of political power; some don't have any at all. Without further ado, please meet:

1) THE INSURANCE INDUSTRY 

Insurance companies have been lobbying for years against bad faith statutes that would prevent them from offering low early settlements. They have been successful - very successful. In fact, they're pretty much why plaintiff financing is necessary at all. It's the free market equivalent of bad faith legislation, enabling plaintiffs to wait out lengthy litigation for the settlements they deserve. Naturally insurance companies want to do away with the threat entirely. ‍

2) LARGE LEGAL FUNDING COMPANIES

‍The big players in legal funding favor regulation that sets high barriers to entry for small mom and pop funders. These barriers include mandatory registration with state regulatory boards, as well as licensing fees in the tens of thousands of dollars. Boutique funders operate with less overhead and can usually offer lower rates - much to the dismay of their bigger competitors. 

3) SMALL LEGAL FUNDING COMPANIES

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These are small firms who typically operate locally, servicing their communities with relatively affordable funding. They give plaintiffs better deals, but can't shoulder hefty registration fees that are negligible to their larger competitors. Many can't even afford to join ALFA, the national organization that represents legal funding providers. These companies want regulation that lets them play on equal footing with the big companies, and which gives consumers enough protection that they don't question the product's value.

4) CONSUMERS

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This one's pretty obvious: consumers want good rates and easy funding, and they want to know they're protected from bad actors. They don't care about lobbying organizations, licensing fees, whether their funding comes from a big firm or a small firm. They just want to pay their bills and get to the next day.

Guess which group is behind the vast majority of pending legislation. That's right - insurance companies who are trying as hard as they can to regulate it away. They claim to be looking out for the consumer while actually looking out for their own bottom lines.

Plaintiff financing is too young for us to know exactly what ideal regulation looks like, but we know it should be geared toward the most important interest group: consumers. The industry exists to champion them. Responsible regulation should protect the consumer without preventing plaintiff financing companies from doing what they do best - empowering the disempowered.