Private Law Theory

ABSTRACT
Litigant finance is a growing and increasingly controversial industry in which financial firms advance a plaintiff money in exchange for ownership rights in the proceeds of the legal claim on a nonrecourse basis: A plaintiff must repay the advance only if compensation is ultimately received for the legal claim. The nonrecourse nature of this funding exempts it from most states’ consumer credit laws, enabling funders to charge higher interest and fees than would otherwise be permitted. When this funding involves ordinary consumers, critics of the industry contend that the uncapped interest rates exploit vulnerable litigants, while its defenders argue that the availability of these cash advances improves the welfare of consumers, especially those who have no other credit options.

This funding made headlines during the recent NFL concussion litigation, with more than one thousand players reported to have received such cash advances and with class counsel raising concerns of ‘predatory lending’. Because the industry has not been forthcoming with facts, the larger policy debate thus far has largely relied on anecdotes and speculation. In addition, the debate has ignored the important differences between pre- and post-settlement litigant funding …

Baker, Lynn A and Avraham, Ronen and Sebok, Anthony J, The Mysterious Market for Post-Settlement Litigant Finance (July 27, 2021). 96 New York University Law Review Online (forthcoming 2021), University of Texas Law, Law and Economics Research Paper forthcoming, University of Texas Law, Public Law Research Paper forthcoming, Cardozo Legal Studies Research Paper forthcoming.