On October 10, the New Jersey Senate Commerce Committee advanced Senate Bill 1475, known as the "Consumer Legal Funding Act," aimed at regulating consumer legal funding providers in the state.
Sponsored by Senator John F. McKeon, SB 1475 seeks to provide transparency and protections for plaintiffs who take out loans while awaiting the outcome of lawsuits. However, the bill has sparked considerable debate over a provision that would make these loans discoverable by the defense.
Consumer legal funding, also known as "litigation funding," involves third-party entities providing financial support to plaintiffs in exchange for a portion of the settlement or judgment. This practice has grown in popularity as it allows plaintiffs to cover living expenses and legal fees while their cases are pending. However, the lack of regulation and transparency in the industry has led to concerns about potential abuses, where third-party funders could exert influence over lawsuits to maximize financial returns.
The bill is designed to regulate companies that offer non-recourse funding to plaintiffs, providing them with financial support in exchange for a portion of potential settlement proceeds. Supporters of the bill, including Jack Kelly, managing director of the American Legal Finance Association, argue that regulation is necessary to protect consumers from unscrupulous practices in the largely unregulated industry.
“Consumers need this protection to stop the bad apples," Kelly said.
Under the proposed legislation, consumer legal funding contracts would be required to meet strict guidelines, including full disclosure of all costs, caps on fees, and a clear explanation of the consumer's rights to cancel. This reform is expected to mitigate the abuses seen in the litigation funding market, where third-party funders often manipulate lawsuits to maximize financial returns, leading to frivolous and excessive legal claims.
The bill would ensure that defendants are aware of any third-party entities with a financial stake in the lawsuits filed against them. The transparency mandated by this legislation may help curb abusive practices while providing individuals or companies subject to a lawsuit the ability to better defend themselves in court.
Public relations firm Marathon Strategies found that New Jersey had 14 nuclear verdicts between 2009 and 2023, which totalled $1,480,387,446, according to a report issued in May. New Jersey’s total nuclear verdicts were the seventeenth largest in the country. Nationwide, 89 lawsuits resulted in nuclear verdicts against corporate defendants last year, marking a 15-year high. The number of nuclear verdicts across the country rose by 27% in 2023, with the median size of nuclear verdicts increasing to $44 million, up from $21 million in 2020.
A Research and Markets report for 2025-2037 indicates the global market for litigation funding investment is set to rise at a CAGR of 11.1%, capturing a revenue of about $60 billion by the end of 2037.
