New York Can Protect And Support Consumers With Legal Funding Legislation

In a world where it feels like the little guy never wins, legal funding gives David a fair shot to beat Goliath. Fortunately, some New York lawmakers understand this and have proposed smart legislation that will enable consumers across the Empire State to benefit from legal funding, while establishing strict regulations to protect them against exploitation and abuse.

The benefits of legal funding are clear. Everyone knows the odds are stacked against the average victim going up against an influential, deep-pocketed organization. With extensive resources and experience fighting legal liability, powerful defendants typically follow the same playbook: Drag out the case long enough to force the victim — often unable to work and cover everyday expenses — to settle.

That’s where legal funding comes in. Victims with established cases can apply for a pre-settlement advance to cover personal expenses (think groceries, medical bills, and rent), while they pursue justice through the legal process. Legal funding ensures a victim doesn’t have to abandon their case prematurely because of financial pressure. This allows a case to proceed on its merits.

Tort reform advocates will have you believe that all personal injury cases are frivolous, but the truth is hardworking people are unfairly harmed — and often robbed of their ability to earn a living — all the time. An American is accidentally injured every second by a preventable event, a vehicle crash, a fall, or the like, according to the National Safety Council. And sometimes the greed or negligence of powerful interests is to blame.

Across the country, legal funding empowers victims to pursue justice. Unfortunately, as with any growing industry, there are a few rotten apples looking to make a quick buck off a victim’s pain, which is why we at the American Legal Finance Association (ALFA) support smart regulation to put bad actors out of business, protect consumers, and ensure fair access to a vital resource.

In New York, Senator Ranzenhofer and Assemblymember Dilan have introduced a bill to effectively regulate legal funders while preserving access to legal funding for consumers. The bill offers a clear, comprehensive plan for regulating funding.

Unlike alternatives, the bill would mandate licensure for funders including a review of their character and fitness, bar funders from being involved in ongoing litigation, prohibit the use of funds for legal expenses, ban referral fees, and require funders to provide clear contracts in the victim’s first language, explaining exactly what they will owe. Further, the bill creates accountability standards, requiring funders to publicly report all transactions and current interest rates on an annual basis.

These provisions create transparency, oversight, and accountability in legal funding without threatening consumer access. In Oklahoma, Vermont, Indiana, and Tennessee, ALFA actively supported similar legislation to protect victims. New Yorkers deserve the same.

Despite promises to serve consumers, some politicians are attempting to cap interest rates on advances. While that may seem like a good idea, rate caps are the wrong approach to regulating legal funding. Pre-settlement advances differ from loans, in part, because a plaintiff isn’t required to pay back the advance unless he or she wins a settlement. Let me repeat: A victim doesn’t have to pay the funder if they lose their case. This empowers consumers because it ensures they don’t need to worry about paying back a loan they can’t afford.

It also makes pre-settlement advances a lot riskier for the funder, and rate caps threaten to drive funders from the market, reducing or eliminating consumers’ access to financial support during legal action.

Without legal funding, the powerful will retain the leverage they’ve always had, and victims will be forced to settle for less.

ALFA supports Senator Ranzenhofer’s and Assemblymember Dilan’s bill because we believe in serving consumers first and foremost. It’s also why we require our members to abide by a Code of Conduct, promoting the highest ethical standards and best practices in the industry, and it’s why we oppose any legislation that effectively eliminates rather than regulates pre-settlement advances.

Everyone has the right to pursue justice. Legal funding levels the playing field so the little guy has a fighting chance against the big guy. New York lawmakers must recognize the value of this resource and enact legislation that establishes high standards for the industry rather than abolishing it.