The proxies of the Insurance Industry flexed their financial muscle and disseminated misinformation to push a gullible Arkansas General Assembly into passing a "Legal Funding" law that will eliminate consumer choice for anyone faced with confronting the Insurance Industry for a fair settlement when they have been injured in an accident. Possibly distracted by Arkansas' version of a Religious Freedom Act, Governor Hutchinson signed the bill into law, and the Insurance Industry celebrated another victory in its quest to continue to increase the leverage it has over the consumers it confronts as a defendant in litigation.
Using its tired and frequently discredited tactic of characterizing Legal Funding transactions as loans, the U.S. Chamber as lead facade for the Insurance Industry also pulled off its charade that it was helping Arkansas achieve tort reform when nothing could be farther from the truth.
Legal funding providers help injured people with a financial bridge that allows them to pursue a fair settlement to their legal claim when confronting an insurance company with vastly greater financial resources. Insurance companies have not appreciated this challenge to their practice of pressuring people who have suffered economic losses into discounted settlements.
Legal funding allows people to sell a small part of an asset they own, a portion of their claim, to responsibly pay the bills that become challenging when they are injured and unable to work. Legal funding is a safe alternative to a loan since the consumer incurs no debts, makes no monthly payments, can never be delinquent, and will never be extended beyond an ability to repay since legal funding consumers never personally take on an obligation to repay. Legal funding companies only receive their investment back and a return on their investment if the asset they purchased - the purchased portion of the claim - repays.
Legal funding companies also receive lower returns than loans that have the same stated rate since the repayments, if any, are paid at the end of the case while loans cash pay every month. Simple time value of money stuff. In Arkansas, lending limits are 17%. A legal funding company would need to charge practically twice that stated rate to reach the same rate of return on an investment that did not repay for 3 years, and, unlike loans, legal funding investments are unsecured by any personal collateral.
Yet the Arkansas law ignores these economic and substantive differences. Based on the US Chamber of Commerce unsubstantiated advice that legal funding "increases litigation costs and crowds court dockets", the Arkansas General Assembly bought into the Insurance Lobby's bunk. Academic studies to date have concluded the opposite - that legal funding companies only invest in pre-existing cases and actually effectuate quicker settlements.
By convincing the Arkansas General Assembly that Legal Funding should be classified as a loan, despite the compelling legal and economic reasons why it should not, the Insurance Industry proxies achieved the opposite of what they were advocating. Do you know what generates a lot of litigation costs and crowds court dockets? LOANS!!! Because entire industries revolve around suing and collecting from delinquent consumers that struggle to repay loans. Legal funding never creates that issue since the consumer takes on no personal obligations.