By Anthony Sebok
As the 2019 legislative session resumes in Albany, members should focus on addressing unfinished business on one of last session's most hotly debated topics: consumer legal funding. This refers to cash advances that consumers can use for everyday expenses like rent or medical bills during their court case.
A New York appellate court, based on well-established law, recently reaffirmed a lower court decision that pre-settlement advances are not loans because recipients only need to repay if their case is successful. This ruling comes on the heels of a similar decision from the Georgia Supreme Court.
Lawmakers in Albany should take note and protect consumer access to pre-settlement advances with strong, sensible regulation. One potential avenue is the bill proposed by Assemblyman Erik Dilan, who has long advocated for a legislative solution to protect consumers. Consumer legal funding has grown in recent years because it has value for victims who are up against powerful interests in the legal system.
Many people with credible personal injury claims have trouble keeping up with everyday financial needs as they pursue legal action. An urgent need for funds to make mortgage or child care payments, for example, is sure to reduce victims' bargaining power in settlement discussions, particularly given the ability of insurance defense attorneys to delay resolution of a case. Pre-settlement funding levels that playing field.
The approach advocated by the tort reform lobby in Albany last year would arbitrarily cap the interest rates funding firms can charge. The experience of other states and the basic laws of economics indicate the rate caps that have been proposed for New York would drive legal funders out of the state, leaving consumers without choice.
I have spent years studying the litigation funding industry. Last year, I co-authored the first large-scale empirical study of the industry in the United States, which was published in Cornell Law Review. The study was based on an analysis of more than 100,000 applications submitted by individual litigants to one of the nation's largest consumer legal finance companies. Our findings exposed many misconceptions about consumer legal funding propagated in the media and by tort reform advocates, notably the myth that the industry is driving frivolous lawsuits in New York.
Given the significant steps that precede the evaluation of a consumer legal funding application – finding a lawyer, retaining a lawyer and then submitting an application to a funder – it's doubtful that the potential to receive a pre-settlement advance would create a sufficient incentive to file a lawsuit.
Consumer legal funding provides a safety net that should be protected and strengthened through sensible regulation. New York lawmakers should seek to ensure that the New Yorkers who need it can safely access this critical resource.
Anthony Sebok is a professor of law at the Benjamin N. Cardozo School of Law at Yeshiva University in New York City.