Investors fueling personal injury lawsuits against businesses by loaning money to plaintiffs are pushing for legal protections in several states.

 

These lawsuit lenders, which include banks and hedge funds, argue that their efforts should not be subject to usury laws, even though they are known to charge high interest rates on their loans. They’re entitled to demand exorbitant rates, they say, because of the risk of many plaintiffs losing their cases. Known in the business as “alternative litigation financing” (ALF), the rules prevent lenders from charging plaintiffs if the case is lost.

 

Such lending now averages about $100 million a year.

 

Lenders’ legislative campaigns in states like Alabama, Kentucky, Indiana, Maryland and New York are running up against opposition from chambers of commerce, insurance companies and others fearful of seeing more litigation directed at them.

 

Meanwhile, the American Bara Association is studying the ethical implication of ALF.

-Noel Brinkerhoff

 

Lobby Battle Over Loans for Lawsuits (by Binyamin Appelbaum, New York Times)

Lawyer Group to Examine Ethical Pitfalls Raised in Center’s “Betting On Justice” (by Ben Hallman, Center for Public Integrity)

Issues Paper Concerning Lawyer’s Involvement in Alternative Litigation Financing (American Bar Association) (pdf)

New Income Opportunity for Banks and Hedge Funds…Investing in Lawsuits (by Noel Brinkerhoff, AllGov)