consumer legal funding

Big-Time Litigation Funding vs. Consumer Legal Funding—Advisory Council Member Writes on Hulk Hogan, Gawker, and Peter Thiel

Last month, ARC Advisory Council member Jeremy Kidd was published in Law 360 with an article that illuminates the differences between litigation funding—like was recently seen Hulk Hogan’s case against Gawker—and consumer legal funding. The piece talks about the Gawker case’s implications for on journalism and free speech, and also shows why public policy makers need to separate litigation funding and consumer legal funding when determining proper regulatory schema.

He references his own October 2015 research in the article, noting:

“With consumer legal funding… when legitimate claims are brought and justice served, it can actually benefit the economy by deterring bad and inefficient behavior.”

Kidd is Associate Professor of Law at Mercer University’s Walter F. George School of Law and holds both a Ph.D. in Economics from Utah State University and a J.D. from George Mason University School of Law. He is a preeminent thought leader on consumer legal funding, and has testified on the topic before state legislative bodies.

Read the full text Kidd’s article HERE.

Photo Credit: Flickr

legal funding

Trending Across the Nation: Legal Funding is Not a Loan

From our latest press release:

Last week, the Indiana legislature passed House Bill 1127, validating that consumer legal funding is not a loan—and shouldn’t be regulated like one. The bill, sponsored by Rep. Matt Lehman, would make Indiana the third UCCC state whose legislature has come to the same conclusion in recent years. “This part of the bill is a major win for consumers. I’m glad they got it right,” said Rob Johnson, former Oklahoma Republican state legislator and Executive Director for The Alliance for Responsible Consumer Legal Funding (ARC). “By passing HB 1127, the Indiana Legislature confirmed that there is a need for consumer legal funding in the Hoosier state.”…

“This is a product that regular working-class people need to be able to access” said Johnson. “Most Americans can’t go months without working. They just don’t have that kind of savings. And, who’s going to give you a loan when you aren’t working and the multi-billion dollar insurance company is slow-waling your claim? We refuse to let people become puppets at the mercy of the insurance industry–allowing them to pull the strings. They use financial pressure to force people into low, unfair settlements for boni fide claims instead of doing what’s right by their neighbor. People are not in good hands if they have no alternative.”

Read the full release HERE.

Kanye West, Get That Money Like Legal Funding

Kanye West—the Chicago-raised hip-hop lyricist, rapper, producer, media-monopolizer, and social media instigator—is now claiming he’s $53 million in debt and has asked Facebook’s Mark Zuckerberg and Google’s Larry Page for a $1 billion investment in his art. Even with his new album, The Life of Pablo, it seems like he’s in pretty deep. And his wife, Kim Kardashian, who has perfected the art of monetizing fame, isn’t coming to the rescue. So what’s a Yeezus to do?

For those wanting to get cash to Kanye, according to Forbes columnist Robert W. Wood, a few options are out there for getting him $1 billion tax free, with little to no tax hit for Mr. West: a loan, purchase, joint venture, or something else.

“Mr. Zuckerberg is probably too clever–with both tax and business savvy–to make a straight loan,” notes Wood. If Zuckerberg ever chose to forgive the debt, it would be deemed income for Kanye and be heavily taxed. That would be one tough 1099-C form for him and Kim K to fill out. Instead, Zuckerberg would likely do a purchase, possibly part of Kanye’s intellectual property.

Wood puts forward a novel idea:

How about a prepaid forward sale? Taking a page from the litigation funding industry, it works like this. A prepaid forward contract is basically a sale, not a loan. In the litigation context, the plaintiff selling a piece of his or her claim, or the lawyer selling a piece of the contingent fee. It arguably offers the best tax result for the plaintiff or the lawyer.

He gets how legal funding works:

You are contracting to sell now, but the sale does not close until the case is resolved. The result is that you generally should not have to report income until the conclusion of the case. Only then can the final price be tallied. It sounds similar to a loan, but is actually better in many cases.

Wood says, “sometimes the loan v. purchase dichotomy can become blurred.” But, he’s more than clear about why legal funding isn’t a loan, and why it is a purchase of property. Perhaps this type of transaction could work for Zuckerberg, Page, and Kanye?

Something to think about, Yeezy.

legal funding

Taylor Swift Gets the Need for Consumer Legal Funding

Adele. Lady Gaga. Ariana Grande. Lorde. These big names in music are just a few in the industry rallying behind Ke$ha in the recent #FreeKesha movement. Taylor Swift has taken it one step further by giving Ke$ha for $250,000 for expenses while she fights to be released from her contract with Sony records. She gets that cases can take a long time to resolve, and that making ends meet during this time can be tough.

If you haven’t been following the case, back in 2014 Ke$ha filed a civil suit that alleges that Sony producer, Dr. Luke, assaulted her during her tenure with his label, Kemosabe Records.  The popstar’s request for a preliminary injunction on the case against Dr. Luke was recently denied, putting the case into further review and keeping the singer locked in her contract. This means it will be even longer until Ke$ha can start putting out more whisky-soaked chart-toppers and start bringing in income again.

Taylor Swift understands that legal battles often drag out, and that financial concerns can add to the stress and turmoil of an already difficult time.

For those who do not have the benefit of having Taylor Swift as a friend, fear not. Most people in the United States have the option of consumer legal funding—a financial product that helps families meet immediate needs after an accident while they wait for a fair settlement. Over half a million people have utilized consumer legal funding to help relieve financial pressure in the last decade.

T-Swift gets it. We get it. And, legal funding providers are there to help.

The 50 Shades of Legal Funding

If you have ever tried to look up information on legal funding, it’s immediately clear that these types of transactions have been given many different names over the last decade—the 50 Shades names of legal funding. Less sexy than the titillating best-selling book, legal funding is nevertheless an important topic, so here’s an attempt to explain the many names of legal funding.

Let’s start at the beginning. Legal funding really became widely available in this country about 15 years ago. Since its inception, people have been calling it different things. In the UK, where the industry has been around a bit longer “litigation finance” is the preferred term. But, since the idea of it is so new to most of the general public in the U.S., nothing has really stuck yet.

Compounding the confusion is the fact that the legal funding industry is divided into two types of legal funding: commercial and consumer. The Alliance for Responsible Consumer Legal Funding (ARC) advocates on behalf of consumer legal funding, which helps everyday people when they are seeking a claim after an accident.

Our coalition uses the term “legal funding.” The American Bar Association used “alternative litigation finance” in its Ethics Commission 20/20 white paper. Wikipedia has an entry for “legal financing.”

Many other names might come up with using a simple Google search:  litigation funding, civil procedure funding, advance payment, professional funding, settlement funding, pre settlement funding, alternative litigation financing, or any combination of the previously mentioned terms. Several different terms have been used in legislation across the country.

All of these monikers attempt to accurately describe and brand a transaction that is becoming more widely used on a national scale.

There is power in a name. Marion Michal Morrison knew it. His stage name was John Wayne. David Robert Jones knew it. He became David Bowie. Dana Owens knew it. She’s now Queen Latifah. It can help sell a sultry, provocative bestselling book—like the one referenced in the title of this blog. Names can build associations in peoples mind when they hear it.

For example, a legal funding crowd-sourcing company likes to call legal funding “plaintiff financing” to evoke the feeling of empowerment. The company touts legal funding’s ability to level the playing field and increase access to justice.

The U.S. Chamber of Commerce’s Institute for Legal Reform and Big Insurance often use the terms “lawsuit loans”, “lawsuit lending,” “lawsuit funding,” or “crash cash” in order to create a negative association with aspects of less consumer friendly products, like loans. Loans create debt, have payments, can hurt a person’s credit, put them into collections, or cause repossession of collateral like a car. Legal funding has none of those things, because it is a purchase.

These big players want push this narrative because they want to regulate legal funding like a loan—even if it’s improper and would hurt consumers. The fewer people that have access to legal funding, the more low-ball settlements people will be pressured to take. The more low-ball settlements people take, the more their bottom line grows.

Some legal funding companies have been a little loose with jargon, themselves. They sometimes say they provide “lawsuit loans”—a name that uses more commonplace parlance, though the term is inappropriate. They view it as good marketing. Ultimately, it a free market and it’s their choice.

As legal funding becomes more familiar to the general public, one name will likely dominate. But for now, these “50 names of legal funding” represent a product that helps families get back on their feet after an accident and is a solution to a need in the free market. Whatever you want to call it, it’s a necessary choice for everyday people.

Lump Sum

Time Value of Money: Why Lump Sum Payments Cost More

We’ve all played the lottery—bought tickets for a chance at winning the $1.5 billion Powerball. If you flick your eyes to the fine print, you see that if you win you can get the money in an annuity over 30 years.  You can elect to receive a lump sum payment now, bu only if you are willing to accept much less than the amount it said you won on the ticket.

Why is this? Well, it’s tied to the “time value of money.” If the lottery pays you as a part of an annuity, they get to hang on to the rest and invest it—so it will cost less for the state to pay you over time. If the state pays you upfront, it costs the state much more.

Insurance companies know this well! They make most of their money by investing premiums and holding on to that cash as long as possible—thus the long and burdensome claims process.

You may have seen this if you make student loan payments. If you asked to defer your payments until after you graduated from school, you might remember that the election caused your rate to double.

The time value of money principle says that everyone wants to receive money now and pay money later.

Legal funding providers are on the short end of this stick.  They pay now and receive later – often much later.  Could be 6 months or 6 years – or never.  By contrast, loans get monthly payments, which lenders can invest in ways that help alleviate the cost of carrying that debt. Legal funding providers carry risk without getting any payments until the end, costing them much more.

Opponents of legal funding intentionally misrepresent the numbers, and the true cost to legal funders of the time value of money. Don’t let them.

US Chamber

ARC and the US Chamber Institute for Legal Reform agree on proper regulations for consumer legal funding

The other day the US Chamber of Commerce, Institute for Legal Reform released their paper titled “101 Ways to Improve State Legal Systems”. In the publication the Chamber weighed in on the issue of consumer legal funding or as they like to call it “lawsuit lending”.

After putting out some questionable information, they pointed to legislation that they liked and wanted to have replicated in the states. One bill in particular caught our eye, SB 1016 from Oklahoma that was passed and enacted in 2013. In the publication the U.S. Chamber Institute for Legal Reform states: “Oklahoma S.B. 1016 (2013) (codified at Okla. Stat. tit. 14A, §§ 3-801 et seq.): Permits lawsuit lending only with respect to existing legal claims. Subjects agreements to the Uniform Consumer Credit Code. Mandates certain contract disclosure information. Requires consumer lawsuit lender to obtain a license and file a bond or irrevocable letter of credit. Prohibits lender from making decisions relating to the conduct, settlement, or resolution of the underlying legal claim.”

Guess what, WE AGREE. We agree that Oklahoma was a good bill and should be the bases for proper regulation in other states. It protects the consumers, it protects the legal system, and it allows the companies to operate in the state as a purchase of an asset and not a loan. This was further emphasized by the bill sponsor Senator Crain on the Senate Floor: “We are specifically defining the transaction is not a loan, it is a litigation financing agreement, so that we do not involve ourselves in any of the banking business. There is no cap.”

In fact in May of 2013 Harold Kim from ILR posted a blog on the signing of the bill, and in the blog he stated: “Governor Fallin, State Senator Brian Crain, and State Representative Leslie Osborn deserve credit for curbing lawsuit lending abuses in Oklahoma, and making their state a leader nationally on this front. Hopefully, other states will follow in Oklahoma’s footsteps.”

So can we now count on the support of the U. S. Chamber of Commerce, their members and the Institute for Legal Reform in passing legislation like what was passed in Oklahoma in the coming State Legislative sessions? We can only hope.