In recent times, the litigation funding industry has caught acceleration in popularity amongst the masses. The global litigation funding market size was valued at $39 billion in 2019, with approximately $85 billion in assets. The only concrete reason for such a surge in public preference is the very nature of this type of financing.
At its core, litigation funders provide capital to litigants—usually plaintiffs—in exchange for a fixed fee or a percentage of the funded amount (plus the capital they take out) that is awarded through judgment or settlement after the case is won. Generally speaking, litigation funding is an attractive alternative to conventional loans for people who are engaged in lawsuits and need a financial boost to meet routine expenses or high costs, and more and more people are turning up to benefit from legal finance during the pendency of their lawsuits.
Let’s dive further into how the litigation funding industry grew and where it is heading.
How did litigation funding start?
Litigation funding started in Australia and the UK and then reached the US financial market. Since its advent, the industry has seen a steady expansion in the 1990s, most probably owing to the increased reporting of asbestos-related injuries and other types of personal injuries.
Asbestos-related claims included disparate grievances from construction, industrial, mining, and other sources of exposure. According to a study conducted by the Rand Corp., industries and insurance companies have paid fortunes close to $70 million only related to injuries from asbestos exposure.
The great recession and the global growth
Since the beginning of this millennium and the onset of the great recession, the legal funding industry has gained increasing recognition. Not only do some jurisdictions require the registration of these financing companies, but with a potential recession on the rise, litigation finance companies in the US, the UK, and Australia are witnessing a tremendous surge in applications.
Non-recourse funding in return for future settlement or compensation is more attractive to people engaged in litigation than conventional loans from banks and financial institutions because no payment is due until a case has been resolved. To fill in the demand-supply gap, hedge funds worldwide are dedicating window operations for legal financing. In recent decades, the industry has only been growing.
Regulation of the litigation funding industry is growing
With increasing players in the litigation funding market, it has been seen that the industry would mandatorily require statutory or private regulation in order to prevent exploitation.
As such, steps were taken by national governments to strengthen this growing aspect of the legal funding industry. In the US, certain jurisdictions have introduced statutory regulations that direct and control the companies offering legal funding services.
Even otherwise, the American Legal Finance Association (ALFA), which acts as the industrial union for this said industry, requires all its members across the country to abide strictly by a set of acceptable practices. These practices were made part of one of its core agreements with the 2014 New York AG Eliot Spitzer.
Third-party litigation finance business model
Regions across the globe have seen an increase in cases involving third-party litigation funding. Even with the high risks for those who invest in litigation finance, accredited investors and hedge funds have realized that legal funding programs are profitable modes of lending, overall making a business model with lucrative returns while minimizing the risks.
Professional assessment from attorneys who can efficiently evaluate settlement cases is crucial in determining whether a funder will make a profit from lending in a specific case. For this very reason, many financial giants have opened window operations dedicated to catering to people involved in pending litigations.
Litigation funders have also designed flexible funding plans for individuals seeking financial help to finance their personal and medical expenses as well. These formulated plans are also non-recourse and much more lenient than those offered by mainstream banks, attracting more and more plaintiffs.
Such a high-paying business model has resulted in more and more corporations offering legal funding programs for the masses.
Currently, there are more than 60 legal funding companies in the US.
The aftermath of the pandemic
The reaction of the legal funding industry to the ongoing novel coronavirus COVID-19 pandemic is yet to be noticed. It is expected that the world may witness an increase in civil litigation and hence an increase in demand for litigation finance.
Moreover, the current economic crisis and how it is being handled is also exposing most of the world population to crises and existential difficulties. For this very reason, even well-off individuals may be expected to reach out for lawsuit financing opportunities.
Federal reports have highlighted the economic disparity in American society, revealing that 4 in 10 American adults find themselves unable to cover an expense of as low as $400 that comes unexpectedly to them. Speculations also predicted unemployment levels to rise as of 2023 to levels higher than the 2008 recession. Such a crisis is deemed to surge demand for short-term credit amongst Americans. For outward expenses, including legal costs, it is highly expected that people may make recourse to litigation financing options.
The takeaway
From the early start of its conception and the expectancy of long-drawn aftermaths of the pandemic, in addition to the current inflation potentially heading to a recession, it is clear that the demand for litigation funding shall climb higher for years to come. Such an increase may be seen not only in the US but in other countries as well.
If you are interested in applying for legal funding, Baker Street Funding’s lawsuit loans for personal injury victims and litigation funding for attorneys and commercial claimants can help you get ahead. Upon approval, you can obtain financing for your necessary expenses, empowering you to focus on your legal battle and successfully recover damages. Apply today.
