California State Senator Introduces Bill to Regulate Lawsuit Lending

2023 is shaping up to be a year in which legislation focusing on the regulation of litigation finance will become a regular feature, ranging from the potential implementation of the Voss Report’s recommendations in the EU, to state-level legislation in the United States. A new development in California has seen a State Senator introduce a bill to more closely regulate the consumer legal funding industry.

Writing in Capital Weekly, California State Senator Anna M. Caballero and Linette Lomeli, executive director of Madera Coalition for Community Justice, put forward an argument in favour of a new bill that would increase consumer protections against predatory lawsuit lending practices. Senate Bill 581 (SB 581) was introduced by Senator Caballero on February 15 and aims to implement new rules around the funding of civil claims and class actions. 

Among its provisions, the bill would require: litigation financiers to be registered with the Secretary of State, litigation financing agreements to be shared with ‘all parties to the litigation, without awaiting a discovery request’, and would prohibit the funder from ‘charging the consumer an annual fee of more than 36% of the original amount of money provided to the consumer for the litigation financing transaction’.

In advocating for the bill, Caballero and Lomeli provide examples of predatory and malicious lawsuit lending practices, including the ongoing Girardi Keese lawsuit, and that the ‘absence of regulation enables bad actors to take advantage of borrowers’. The authors do not advocate for consumer lawsuit lending to be prohibited entirely, but instead argue for reforms which they argue ‘strike a balance between protecting vulnerable borrowers and ensuring the lawsuit lending industry can continue to serve an important role for those in financial need.’

With regards to the section of the bill requiring disclosure of litigation funding agreements to all parties in civil and class action cases, Caballero and Lomeli suggest that this will increase transparency whilst revealing any conflicts of interest between financiers and parties involved in the lawsuit.

2023 is shaping up to be a year in which legislation focusing on the regulation of litigation finance will become a regular feature, ranging from the potential implementation of the Voss Report’s recommendations in the EU, to state-level legislation in the United States. A new development in California has seen a State Senator introduce a bill to more closely regulate the consumer legal funding industry.

Writing in Capital Weekly, California State Senator Anna M. Caballero and Linette Lomeli, executive director of Madera Coalition for Community Justice, put forward an argument in favour of a new bill that would increase consumer protections against predatory lawsuit lending practices. Senate Bill 581 (SB 581) was introduced by Senator Caballero on February 15 and aims to implement new rules around the funding of civil claims and class actions. 

Among its provisions, the bill would require: litigation financiers to be registered with the Secretary of State, litigation financing agreements to be shared with ‘all parties to the litigation, without awaiting a discovery request’, and would prohibit the funder from ‘charging the consumer an annual fee of more than 36% of the original amount of money provided to the consumer for the litigation financing transaction’.

In advocating for the bill, Caballero and Lomeli provide examples of predatory and malicious lawsuit lending practices, including the ongoing Girardi Keese lawsuit, and that the ‘absence of regulation enables bad actors to take advantage of borrowers’. The authors do not advocate for consumer lawsuit lending to be prohibited entirely, but instead argue for reforms which they argue ‘strike a balance between protecting vulnerable borrowers and ensuring the lawsuit lending industry can continue to serve an important role for those in financial need.’

With regards to the section of the bill requiring disclosure of litigation funding agreements to all parties in civil and class action cases, Caballero and Lomeli suggest that this will increase transparency whilst revealing any conflicts of interest between financiers and parties involved in the lawsuit.