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89 Chi.-Kent L. Rev. [i] (2014)

handle is hein.journals/chknt89 and id is 1 raw text is: CHICAGO-KENT LAW REVIEW VOLUME 89 2014 NUMBER 1 CONTENTS FRINGE ECONOMY LENDING AND OTHER ABERRANT CONTRACTS SYMPOSIUM EDITOR SARAH HOWARD JENKINS, CHARLES C. BAUM DISTINGUISHED PROFESSOR OF LAW INTRODUCTION Sarah Howard Jenkins 3 I. FRINGE ECONOMY LENDING - THE PROBLEM, ITS DEMOGRAPHICS, AND PROPOSALS FOR CHANGE THIRD PARTY FUNDING OF PERSONAL INJURY TORT CLAIMS: KEEP THE BABY AND CHANGE THE BATHWATER Terrence Cain 11 In the early 1990s, a period of high-risk lending at high interest rates, a new entrant emerged in civil litigation: the Litigation Finance Company (LFC). LFCs advance money to plaintiffs involved in contingency fee litigation. The money is provided on a non-recourse basis, meaning the plaintiff repays the LFC only if she obtains money from the lawsuit through a settlement, judgment, or verdict. If the plaintiff recovers nothing, she will not owe the LFC anything. When she does repay the LFC, however, she could end up paying as much as 280% of the amount advanced by the LFC. As one can see, LFCs make a lot of money. It is estimated that as of 2011, the total amount of outstanding advances exceeded $1 billion with $100 million being advanced annually. LFCs, like banks and credit card issuers, loan money to consumers with the expectation of being repaid the amount borrowed plus interest. Unlike banks and credit card issuers, however, LFCs are largely unregulated. The federal government does not regu- late LFCs at all, and only Maine, Ohio, and Nebraska have enacted legislation regulating LFCs that operate in their respective states. What LFCs do is contro- versial, and the academic commentary about them is voluminous. Some com- mentators argue that LFCs should be abolished. Others say LFCs are the byproduct of willing sellers and willing buyers engaging in market transactions. Yet another group of commentators say LFCs serve a salutary purpose, but should be regulated like other entities that loan money to consumers. It is proba- bly unrealistic to think that LFCs will be abolished, thus the question becomes whether they should be regulated, and if so, by whom. This paper posits that LFCs should be regulated by the Consumer Financial Protection Bureau, the Federal Trade Commission, or both. Federal regulation is necessary in order to provide a uniform set of rules that provide protection to consumers while also allowing LFCs the freedom to provide the funding that consumers have shown they are willing to seek and accept.

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