The Growth Of Litigation Funding Industry

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Growth of litigation funding

In recent times, the legal funding industry has caught acceleration in popularity amongst the masses. More and more people have been seen turning up to benefit from finances during the pendency of their lawsuits. The only concrete reason for such a surge in public preference is the very nature of lawsuit funding: these are attractive alternatives to conventional loans for people who are engaged in lawsuits and need finances to meet routine expenses or high costs. Legal financing companies provide cash advances to litigants—usually plaintiffs—in exchange for a fixed fee or percentage of the amount that is awarded through judgment or settlement.

Asbestos-related claims and Litigation funding

Litigation funding started in Australia and the UK and then reached the US financial market. Since its advent, the industry had seen a steady expansion in the 1990s, most probably owing to the increased reporting of asbestos-related 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 immediate onset of the great recession, the legal funding industry has gained increasing recognition. The lending of money in return for future settlement or compensation income seemed attractive to people engaged in litigation than the conventional loans from banks and financial institutions. Along with the US, the UK and Australia have also witnessed a surge in legal funding applicants, as well as registered financing companies during the past decades. To fill in the demand-supply gap, financial institutions across the world have started dedicated window operations for legal financing. 

Regulation of the litigation funding industry

With increasing players in the legal funding market, it was seen that the industry would mandatorily require statutory or private regulation in order to prevent exploitation. With such, steps were taken by national governments to strengthen this growing aspect of the financial industry. In the US, certain states have introduced statutory regulations that direct and control the companies offering legal funding services. Even otherwise, the American Legal Finance Association (ALFA), being the industrial union for this said industry, requires all of its members across the country to strictly abide 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 legal funding business model

Regions across the globe have seen an increase in cases involving third-party legal funding. Financial institutions have realized that legal funding programs are safer modes of lending, overall making a business model with lucrative returns and minimal risks. Professional assessment and efficient evaluation of settlement cases is crucial in determining whether a company 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. These companies have designed flexible funding plans for individuals seeking financial help to finance their personal and medical expenses. These formulated plans are much 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 one hundred legal funding companies in the US.

Legal funding & the ongoing pandemic

The reaction by the legal funding industry to the economic destruction brought along by 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 legal funding. Moreover, the economic crisis has also exposed the majority of the world population to living crisis 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 in the latter half of this year to rise to levels higher than that in the Great Depression.

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 legal funding options. In such a manner, the plaintiffs can obtain financing for their household expenses, such assistance, which empowers them to focus on their legal battles and recover from them.

With the expectancy of long-drawn aftermaths of the pandemic, it is clear that the demand for lawsuit 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.

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