Nevada May Be the Next Battleground in ‘The War on Funding’

The Consumer Legal Funding industry is facing another test in the state of Nevada, where bill SB 432 has already passed the Senate and now awaits a floor vote in the House. The bill seeks to cap funding fees at 40% annually, and include additional regulations such as the disclosure of all fees and disallowance of commissions and referral fees.

As reported in the Nevada Current, Nevada may be on the cusp of becoming one of roughly half-a-dozen states to regulate the Consumer Legal Funding industry. George Burns, retired Commissioner of the Nevada Department of Business’s Financial Institutions Division worries that Consumer Legal Funding will negatively impact consumers who are used to traditional loan terms. Of course, the industry counters that their product is not a loan, given that funding is non-recourse and therefore not obligated to be repaid when cases are lost at trial.

A recent study by Cardozo Law professor Anthony Sebok, which analyzed over 200,000 funded claims, found that in 12% of all cases the funding company incurred losses – and in 10% the funder lost their entire capital commitment.

Many industry opponents have attempted to paint the funding industry in the same light as payday lending, yet there are stark contrasts: Consumer Legal Funding does not impact credit, nor does the customer face a worse financial stake – even if the case is lost – such as repossession of assets.

Despite this, industry opponents such as the U.S. Chamber of Commerce continue their push against Consumer Legal Funders. With SB 432’s passage, Nevada is shaping up to be the next point of confrontation in an ongoing dispute over whether funders are to be considered lenders or investors.

The Consumer Legal Funding industry is facing another test in the state of Nevada, where bill SB 432 has already passed the Senate and now awaits a floor vote in the House. The bill seeks to cap funding fees at 40% annually, and include additional regulations such as the disclosure of all fees and disallowance of commissions and referral fees.

As reported in the Nevada Current, Nevada may be on the cusp of becoming one of roughly half-a-dozen states to regulate the Consumer Legal Funding industry. George Burns, retired Commissioner of the Nevada Department of Business’s Financial Institutions Division worries that Consumer Legal Funding will negatively impact consumers who are used to traditional loan terms. Of course, the industry counters that their product is not a loan, given that funding is non-recourse and therefore not obligated to be repaid when cases are lost at trial.

A recent study by Cardozo Law professor Anthony Sebok, which analyzed over 200,000 funded claims, found that in 12% of all cases the funding company incurred losses – and in 10% the funder lost their entire capital commitment.

Many industry opponents have attempted to paint the funding industry in the same light as payday lending, yet there are stark contrasts: Consumer Legal Funding does not impact credit, nor does the customer face a worse financial stake – even if the case is lost – such as repossession of assets.

Despite this, industry opponents such as the U.S. Chamber of Commerce continue their push against Consumer Legal Funders. With SB 432’s passage, Nevada is shaping up to be the next point of confrontation in an ongoing dispute over whether funders are to be considered lenders or investors.