The lawsuit loan is a financial transaction wherein a company advances money to an individual involved in a civil lawsuit but who is still waiting for the matter to be concluded.  In other words, the plaintiff gets money now and he/she assigns a portion of the case’s ultimate recovery.  The lawsuit funding business arose out of an ever increasing need for immediate cash to meet the pressing financial obligations many plaintiffs were facing.

The most common example is a plaintiff who is injured, due to the negligence of another, and whose injuries prevent him from financially supporting himself.  With nowhere else to turn for funds (many typical lawsuit funding clients have poor credit or would otherwise not qualify for a personal loan), pre settlement loan companies offered relief to these individuals.

According to an article entitled, “Regulation of ‘lawsuit funding’ industry faces uncertain future in Senate” originally published here, the Kentucky Legislature passed a bill through the State Senate in an effort to regulate the “lawsuit funding” business.

This is not the first attempt by state legislatures to consider regulating the pre settlement loan industry.  And ultimately, some sort of legislation may actually be passed.  This post will consider the costs associated with potential regulation and what possible consequences, intended or otherwise, could arise from this interference in the free market. Read more »