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.