By Rachel McCarthy
On March 4, a Missouri judge gave initial approval to the proposed $7.25 billion settlement, which would resolve thousands of pending lawsuits claiming that Bayer’s Roundup causes cancer.
Only a day later, dozens of consumer litigation funders already have webpages up, ready to encourage plaintiffs to seek settlement advances.
Consumer litigation funding plays an important role in our legal system, enabling plaintiffs to pursue justice rather than dropping their claims or settling for less than their injuries deserve. However, for this funding to truly support justice, funders must make their funding terms clear and in plain language from the get-go of engaging with an interested plaintiff and offer support at rates that are not exploitative or nearly usurious.
The industry must also reassess how it positions its offerings. Consumer litigation finance should be viewed as a last resort by plaintiffs and leveraged after plaintiffs have discussed with their attorneys; funders should not proactively solicit plaintiffs to seek settlement advances.
This growing industry is like the Wild West of our legal system—and the unclear terms on websites that offer plaintiffs pre-settlement funding, coupled with the lack of regulation on interest rates that can be charged, highlight critical opportunities for reform.
A Nationally Unregulated Industry
Consumer litigation funding began in the 1990s as a tool for plaintiffs who were increasingly seeing their personal injury claims deliberately dragged out by insurance companies who realized that the longer litigation would take, the less money a plaintiff would accept. By providing plaintiffs a way to cover the gap in paying life expenses while they pursued their case, the attorney could see the lawsuit through to its just end. This funding is typically used to cover critical daily expenses such as housing, transportation, and groceries. Unlike commercial litigation funding, it is not used to finance the litigation itself. But in the decades since consumer litigation funding’s beginnings, it has grown into a sprawling, largely unregulated industry.
While some states have enacted meaningful legislation for plaintiffs around litigation funding, most states lack any formal protection for plaintiffs. Because plaintiff funding advances are non-recourse, many traditional funders can easily navigate around states’ usury and other consumer protection laws.
Further, there is no federal cap on the interest rates that lenders can charge for litigation funding. Annual percentage rates (APRs) on advances in this market range from 30% and can soar as high as up to 124%. This lack of regulation exposes plaintiffs to financial risk while they pursue their case or wait for their settlement.
Roundup Funding Terms
A consumer looking for a settlement advance for their Roundup injury claims will likely have little chance of understanding the terms of what they are getting. Even a cursory review of half a dozen funders’ Roundup funding pages leaves the consumer in the dark about the terms of their funding.
While it’s easy for someone to enter their name, email, requested funding amount, and preferred delivery method for the advance, these pages provide no meaningful disclosure of the funding terms, like the interest rate or Annual Percentage Rate, of their repayment schedule, or additional fees.
For the average consumer, this looks like a low-stakes way to secure funding for a settlement they believe is on the way. But what they may not realize is that they could owe tens of thousands of dollars on their advance by the time their settlement arrives.
One funder states, “We can provide you with up to $1 million in legal funding. The money can be deposited in your bank account within 24 hours of your application’s approval. Applying is easy and takes just a few minutes and can be done online or with one of our agents.” But nowhere on its page does it walk a plaintiff through the interest rates and how that could impact their total recovery after the settlement.
The opaque nature of the consumer litigation funding industry leaves plaintiffs vulnerable to exploitation after they have already suffered a significant trauma that brought them into the legal process in the first place.
Opportunities for Reform
Consumer litigation funding is a critical bridge to justice for hundreds of thousands of plaintiffs across the country. The industry must balance risk with the goal of opening up access to justice—not just enriching funders at the expense of qualified plaintiffs.
Whether that is funders undertaking a more discerning vetting process for whom they fund, or building their financing model with an interest rate that still provides plaintiffs with most of their settlement, failure to adjust the industry leaves this critical option open to criticism and vulnerable to unilateral efforts to stop the practice. It puts plaintiffs across the country who rely on consumer litigation funding at risk.
States across the country have introduced legislation to protect consumers, from Ohio and Oklahoma to Nebraska and New York. These states have established benchmark requirements for litigation funders to engage with plaintiffs, but more needs to be done at the national level.
Instead of allowing plaintiffs to quickly sign up for loans without disclosures of forthcoming APRs, federal legislation should require up-front disclosures of interest rates, expected APRs, and plan-language contract terms. Funders should also be limited on the total amount of a plaintiff’s final settlement that they can recover. Finally, a national cap on interest rates would protect plaintiffs from exploitative lenders, balancing risk with plaintiffs’ ability to access the settlement they are entitled to.
These common-sense reforms would benefit not only those currently seeking funding after a major national settlement announcement but also all plaintiffs across the country.
Rachel McCarthy is the Executive Director of The Milestone Foundation.