Monday, January 17, 2011

New NY Times article on litigation lending

As I reported a couple of days ago, last November the New York Times published an article (available here) on entities that lend money to litigants in exchange for an assignment of an amount of the potential proceeds of the litigants' legal action. The article generated an interesting discussion. Go here for links.

Today, the New York Times published a new article on the issue (available here). It states, in part,

The business of lending to plaintiffs arose over the last decade, part of a trend in which banks, hedge funds and private investors are putting money into other people’s lawsuits. But the industry, which now lends plaintiffs more than $100 million a year, remains unregulated in most states, free to ignore laws that protect people who borrow from most other kinds of lenders. Unrestrained by laws that cap interest rates, the rates charged by lawsuit lenders often exceed 100 percent a year, according to a review by The New York Times and the Center for Public Integrity. Furthermore, companies are not required to provide clear and complete pricing information — and the details they do give are often misleading. A growing number of lawyers, judges and regulators say that the regulatory vacuum is allowing lawsuit lenders to siphon away too much of the money won by plaintiffs.

Unfortunately, as I reported a couple of days ago, the Illinois legislature defeated a proposal to regulate the industry. See here.

For a comment on today's NYT article go to Legal Ethics Forum, where Prof. Stephen Gillers argues that "[m]issing from the article is recognition that that today, without LFCs, we still have an unregulated market in which the needy plaintiff can sell her claim at a discount. It is called settlement and the claim can only be sold to one buyer, the defendant, who will also want a big discount, bigger if the plaintiff is especially in need." For his full comment and replies by others go here.

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