Several entities and funding companies are in an existing debate on how to improve several aspects of lawsuit funding. These proposals may be one-sided but with careful planning and successful discussion, each party can meet halfway.
Proposal to Change Legal Funding
This proposal aims to improve and make legal funding more understandable.
• Return Caps. There are two ways of capping rates with return of settlement funding. The first one is creating a maximum annual rate of return. This is used as an attempt to regulate legal financing out of their existence. The second method is creating a cut-off date when the rate of return is no longer applicable. The second method is less harmful to legal funders. Classifying legal financing as a form of consumer lending can help set these caps.
o PROS: There is an instinctive appeal to putting limits on how much a consumer can borrow and can be charged. It looks like a simple way of ensuring consumers that they do not end up owing more than they bargained for. This prevents them from owing massive amounts or going bankrupt.
o CONS: It is a fact that litigation funding is a very risky as well as costly investment. Legal cases are difficult to price accurately. They are also very hard to assess. Most legal funders adopt the risk of a failed lawsuit. Legal funders need to charge higher rates than traditional loans in order to stay in business. If the cap is not set high enough, they will just stop operating.
Most of these proposals are geared to proper regulation as well as standardization of processes. Funding companies and other entities should have a mutual agreement on how to make this type of service more available and more organized for consumers.
Making the Funding Industry Better
The great thing about these proposals is that they are considered the best industry practices. They can protect both consumers and funding companies. They can prevent litigants from owing legal funders too much money. These provisions enable consumers to make the right decision without burdening the legal funders too much. Some of these proposals also prevent unreliable companies from operating in the industry.
However, the downside of these proposals is that not everyone agrees on how important certain disclosure agreement provisions are . There are some provisions that may cause more legal disputes, which is why companies and lawyers are skeptical about them. Lastly, this type of funding or investment is uncertain and expensive, which makes it difficult to gauge and evaluate. There are no standards on how to price them accurately, which is why funding companies charge higher rates of return in order to compensate for their high risks.
.:About the author:.
James Sheridan is the Contracts Manager at Pegasus Legal Funding LLC and is responsible for the final stage of the funding approval process. James focus and priority is delivering to PLF’s clients the funds they need as quickly as possible