Billed as a tort reform initiative and a way to protect consumers, a bill promoted by front groups for the insurance industry lobby to restrict consumers from accessing legal funding (aka lawsuit lending) is working its way through the Arizona General Assembly. Senate co-sponsors of the bill are slowly learning that the bill does not address the issues they sold them on signing onto the bill - tort reform and consumer protection.
Legal funding allows people to sell a small portion of their legal claim so that they can pursue the full value of their claim without the financial pressures that might force them to settle early and well below fair value. These people did not ask to be injured, or to be in a dispute with a defendant insurance company that has superior financial resources. Legal funding requires no monthly payments, no debt, no personal requirement to repay.
Insurance companies have been aggressively attempting to preserve the status quo, and restrict the options of those they face in litigation. Their legislative initiative against legal funding is one more prong of this strategy, and they have been pushing this initiative with false claims about legal funding.
Premise #1: SB1403 is about tort reform. Not true. Legal funding companies only buy existing claims, and none of the money goes to pursue the claim. All customers already have an existing claim and retained lawyer on contingency that is footing the bill to pursue the case.
Premise #2: SB1403 makes sure attorneys are aware of the transactions. Not true. Industry best practices - and common sense - already protect the consumer-attorney relationship. Legal funding companies make sure that the attorneys are aware of the transaction and sign off on it. That is an industry best practice, and rational since otherwise the attorney may not know of the legal funding company's interest when proceeds are paid. And despite this being a rational for SB1403, SB1403 contains no provisions that require notification to or acknowledgement by the consumer's attorney.
Premise #3: Consumers must be protected from hidden fees and transaction costs. First, SB1403 contains no provisions that provides this transparency and disclosure protection. Second, industry best practices that date back to a 2005 agreement with the NY Attorney General provide clear notice and disclosure, including fee schedules that show in 6 month increments the amounts payable to the Legal Funding company and the maximum amount the Legal Funding company could be entitled to. And the lack of any consumer complaints in Arizona supports this
Premise #4: Lawsuits should be between a plaintiff and a defendant. If that was the case, than the injured party would be facing the individual that caused the accident in court. Instead, they face a behemoth insurance company with more leverage and experience than them. Legal funding companies help make financial resources not be a barrier to receiving a fair settlement by allowing consumers options that don't force them to take a heavily discounted settlement offer due to financial pressures.
Premise #5: SB1403 addresses predatory payday lending issues. Again, not true. Ironically, a payday bill that allows for a 216% APR is circulating through the Arizona General Assembly with broad support, including from sponsors of SB1403. Predatory concerns involve making monthly payments, aggressive collections actions for missing payments, and debt obligations that can only be discharged through bankruptcy. Legal funding, by contrast, is the purchase of a future payment and entails none of those issues or level of expense. That's why the state has not seen any registered complaints against the industry in its 10+ years of existence in Arizona.
Hopefully, a powerful insurance industry cannot use the Arizona General Assembly as a way to pick winners and losers in its game to protect profits, and the Senators and Representatives in Arizona will follow the lead of the states that have properly regulated legal funding (Maine, Ohio, Oklahoma and Nebraska) and realize that they are being sold a bill of goods.