As the world of 3rd-party litigation financing ("LTPF") grows, state efforts to regulate this industry sector endeavor to keep pace. While much of this activity takes place outside of public view, scholarly attention is increasing.
One example includes a recent paper by Ronen Avraham (Tel Aviv, Texas), Anthony Sebok (Cardozo) & Joanna Shepherd (Emory), The Whac-A-Mole Game: An Empirical Analysis of the Regulation of Litigant Third Party Financing. What the paper finds, unsurprisingly, is that as states ramp up regulation on LTPF, funding activity declines; where loosening of state regulations corresponds with increased funding activity.
Another core finding, and inspiration for the paper's title, is that funders continually adjust contract terms in an effort to circumvent regulations. To illustrate, "when legislation prohibits compounding or limits how long funders can charge interest, the funder responds by increasing the posted monthly interest rate. Although these interest rate increases are not enough to completely offset the impact of the other restrictions on the funder’s returns, the funder nevertheless has higher returns than it would have without the attempted circumvention." Thus, akin to the "classic Whac-A-Mole game, funders try to maintain their pre-regulation per-funding-return no matter how states’ regulatory activity tries to get rid of it."
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