The business of lending to plaintiffs in court cases arose over the last decade as part of a trend in which banks, hedge funds and private investors are putting money into other peopleâ€™s lawsuits. But the industry, which now lends plaintiffs more than $100 million a year, remains unregulated in most states, free to ignore laws that protect people who borrow from most other kinds of lenders. The interest rates charged by lawsuit lenders often exceed 100 percent a year, according to a review by The New York Times and the Center for Public Integrity.
While a growing number of lawyers, judges and regulators say that the regulatory vacuum is allowing lawsuit lenders to siphon away too much of the money won by plaintiffs, the lending companies justify their practices saying that they are not lenders because plaintiffs are not required to repay the money if they lose their cases.
1. Explain why, as the article says, that lawsuit lenders are much better than venture firms at picking winners.
2.Â How much did the article say that lawsuit lending companies typically lose on their clients?
3. Do you think that lawsuit lenders should be subject to state consumer protection laws?Â Why or why not?
Appelbaum, B. (2011). Lawsuit Loans Add New Risk for the Injured, The New York Times, January 16 (Retrievable online at http://www.nytimes.com/2011/01/17/business/17lawsuit.html?src=me&ref=business)