The Business Council supports S.3911-A (Ortt) / A.8653 (Magnarelli), which would begin to control the heretofore unregulated lawsuit lending industry in New York State. Third Party Litigation financing began in earnest in the 1990s and provides money to plaintiffs to utilize during litigation. Unfortunately, these loans are often attached to usurious interest rates, fees, and charges, sometimes as high as 200 percent. These kinds of loans can leave even successful plaintiffs with little to no recovery.
Lawsuit lending in and of itself is problematic in that it can distort a plaintiff’s decision making process when it comes to tort claims. Some plaintiffs for example may opt to reject reasonable settlement offers because they will ultimately need more money to pay off a high-interest loan, thus jeopardizing any recovery at all. It also greatly increases costs for defendants who are forced to endure unnecessarily prolonged and costlier litigation.
As the sponsor’s memo rightly points out, the practice of lawsuit lending can also create conflicts of interests for plaintiffs’ lawyers as they may develop referral relationships with certain lawsuit lenders and may be expected to continuously refer clients to those companies. This legislation cures that risk by prohibiting attorneys from receiving referral fees from a lending company in connection with a plaintiff’s funding.
Lawsuit lending is a practice that simultaneously hurts consumers while undermining the integrity of the judicial system. The regulation of this industry and its lending practices is a good start in stymieing the harms associated with the practice. For these reasons, The Business Council supports S.3911-A (Ortt) / A.8653 (Magnarelli).