Below is the abstract for “The Mysterious Market for Post-Settlement Litigant Finance,” available for download on SSRN.

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.

This Article is the first to present systematic, large-scale data on post-settlement litigant funding—the type of funding most NFL players reportedly received. We were given unrestricted access to the complete archive of sixteen years of funding applications and funding contracts from one of the largest consumer litigant funding companies in the United States. These data, which are robust and representative, enable us to make transparent the terms and true price to consumers of this formerly mysterious funding. We find that the Funder offers not only clearer contract terms but also better financial terms to post-settlement clients relative to pre-settlement clients. Yet these better terms do not come close to reflecting the virtually nonexistent litigation risk to the Funder. We therefore recommend that post-settlement litigant funding be subject to the same regulations as conventional consumer credit and that a standardized, simple disclosure be required.

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Lynn A. Baker

University of Texas at Austin School of Law

Lynn A. Baker is a graduate of Yale Law School, Yale College, and Oxford University (Marshall Scholar), she was a Law Clerk to the Hon. Amalya L. Kearse, U.S. Court of Appeals for the Second Circuit (1985-86 Term). Her scholarly and teaching interests include Professional Responsibility (especially issues involving "aggregate" litigation and group settlements), attorneys' fees, mass tort litigation, "Mega-settlements," and State and Local Government Law.

Ronen Avraham

Tel Aviv University Faculty of Law

Ronen Avraham is a professor of law at Tel Aviv University Faculty of Law. He came to Tel Aviv from the University of Texas at Austin. Before then, he was an Associate Professor of Law at Northwestern University in Chicago. Avraham obtained his LL.M. and J.S.D. from Michigan Law School after receiving his LL.B. and MBA, Magna Cum Laude, from Bar Ilan University (Israel). He is also a senior lecturer at the University of Texas at Austin School of Law.

Anthony J. Sebok

Yeshiva University, Benjamin N. Cardozo School of Law

Anthony J. Sebok is an expert on legal ethics, litigation finance, tort law, and insurance law. Before coming to Cardozo in 2007, he was the Centennial Professor of Law and the Associate Dean for Research at Brooklyn Law School where he taught for 15 years. He was a Fellow in the Program in Law and Public Affairs at Princeton University from 2005-06, and in 1999, he was a Fellow at the American Academy in Berlin.

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