Lawsuit Lending

Lawsuit lending is a financial practice that provides “up-front” cash to individual plaintiffs to cover immediate living or medical expenses during litigation. These loans are typically attached to sky-high interest rates, fees, and charges – as much as 200 percent – that can leave borrowers with little to no recovery. In addition, lawsuit lending prolongs litigation and distorts the fundamental nature of the civil justice system.

In lawsuit lending, repayment is contingent on the plaintiff recovering some sort of monetary compensation, either through a settlement or verdict. In fact, the lawsuit lending industry goes to great lengths to tell the public that consumer lawsuit loans are not really loans at all, but are instead “nonrecourse financing.” This rationale is how lawsuit lenders have managed to avoid regulation in many states. Read More...

Unfortunately, lawsuit lending is far from harmless. It hurts consumers while undermining the integrity of the justice system.

The practice hurts consumers by eating into their recoveries in litigation. The New York Law Journal reported on the case of a Brooklyn man who borrowed $27,000 from a lawsuit lender for a slip-and-fall lawsuit. His case was settled five years later, but the lender demanded $100,000 – two-thirds of the total settlement and more than three times the amount of the original loan. To add insult to injury, the plaintiff’s lawyers pocketed an additional one-third of the settlement – leaving the plaintiff with just $111 out of a $150,000 settlement. In another case reported by the New York Times, a plaintiff actually lost money. After winning nearly $170,000 at trial, the plaintiff’s lender claimed it was owed $221,000 – an amount 30 percent larger than the total recovery.

Moreover, lawsuit lending distorts the civil justice process by altering a plaintiff’s decision making process. For example, a plaintiff may reject a reasonable settlement offer for the chance of obtaining a higher verdict in court because they will need to pay off a high-interest loan. This choice jeopardizes the chance of any recovery, as litigation could result in a lower than expected verdict or a judgment in favor of the defendant. It also increases costs for defendants, who are forced to endure prolonged and costlier litigation.

Finally, lawsuit lending undermines the integrity of the civil justice system. By inserting a third party into the case, lawsuit lending compromises the interests of litigants – upsetting a primary bedrock of the justice system. It also creates conflicts of interests for plaintiffs’ lawyers, who may develop referral relationships with certain lawsuit lenders and be expected to “steer” clients to those lenders.


Lawsuit lending should be regulated like any other consumer financial product. In November 2015, the Colorado State Supreme Court unanimously decided that lawsuit lending is subject to the state's existing consumer lending law. The ruling established an important legal precedent that lawsuit lenders must play by the same rules as other lenders in the state. Several bills have also been introduced in state legislatures to do exactly that. Oklahoma became the first state to pass such legislation in 2013. In 2014 Tennessee passed a law that provides meaningful regulation to lawsuit lending, and in 2015, Arkansas followed suit. Indiana joined the community of states regulating this product under state consumer lending laws in 2016. 

Suggested Resources


All Results for Lawsuit Lending

  1. Crain's NY Highlights ILR's Efforts to Rein in Lawsuit Lenders

    February 11, 2015 | News and Blog

    "Is this a course we want to take in the U.S. for our civil justice system? Do we want it to become a profit-making entity for private hedge funds?"... Read More

  2. Kudos to Indiana House for Passing Lawsuit Lending Reform Bill

    February 06, 2015 | News and Blog

    Earlier this week, Indiana became the latest state to advance legislation to rein in the lawsuit lending industry, with the Indiana House of Representatives passing a common-sense reform bill on a vote of 68-20.... Read More

  3. ILR Launches Mobile Apps to Highlight the "Faces of Lawsuit Abuse"

    January 06, 2015 | News and Blog

    ILR has launched mobile apps for its successful "Faces of Lawsuit Abuse" campaign - providing a unique engagement experience for users accessing the Web from their smartphones and tablets.... Read More

  4. In The News Today - January 2, 2015

    January 02, 2015 | News and Blog

    Listing it as one of the "Five big corporate law decisions you might see in 2015", the Financial Post notes the Canadian Supreme Court's upcoming decision regarding Ecuadorian plaintiffs' $9.5 billion judgement against Chevron.... Read More

  5. In The News Today - November 26, 2014

    November 26, 2014 | News and Blog

    181 asbestos cases are schedule for Monday, December 1 in a single Madison County, IL courtroom – and only one of the plaintiffs is from Madison County.... Read More

  6. Lawsuit Lending: South Carolina Calls It Like It Is

    November 25, 2014 | News and Blog

    A recent ruling from the South Carolina Department of Consumer Affairs means the Palmetto State is joining several other states by calling lawsuit loans what they are under state law: a loan subject to state consumer credit laws.... Read More

  7. ILR Role in Lawsuit Lending Reform Noted in Story Highlighting TN Victory

    October 16, 2014 | News and Blog

    In a story highlighting awards given to two Tennessee state legislators for their role in passing a lawsuit lending reform bill in their state, the Insurance Journal highlights the U.S. Chamber Institute for Legal Reform's role in the national effort to regulate these lenders.... Read More

  8. In The News Today - August 25, 2014

    August 25, 2014 | News and Blog

    Similar in nature to "payday loans," lawsuit lending is increasingly coming under fire for its predatory imposition of high interest rates resulting in huge costs for consumers, "typically way beyond what's allowed for conventional loans."... Read More

  9. ILR Calls for Investigation into Lawsuit Lenders' Possible Violations of the Illinois Workers Compensation Act

    July 10, 2014 | News and Blog

    The Illinois Workers Compensation Act expressly prohibits assignment of any payment, claim, award or decision - which is why it is so concerning that various lawsuit lending firms are marketing and providing loans to workers compensation claimants in Illinois.... Read More

  10. Business Community Opposes Louisiana Legislation that Legitimizes Lawsuit Lending Industry

    May 28, 2014 | News and Blog

    The Louisiana House of Representatives is considering legislation - SB 299 - that, "creates the appearance of regulation, but really allows consumer lawsuit lenders to operate outside of Louisiana law," according to an alert issued by the Louisiana Association of Business and Industry (LABI).... Read More