A new potential law, moving quickly through the Illinois General Assembly, would give third-party lawsuit financiers a green light to engage in “predatory lending practices” against the plaintiffs whose claims they are financing, while increasing the litigation cost burden paid by businesses, consumers and taxpayers throughout the state, according to a coalition of business groups opposed to the bill.
This spring, Illinois state lawmakers are poised to soon send the so-called Consumer Legal Funding Act to Gov. JB Pritzker. The proposed law would change the way the state governs third-party lawsuit funding.
Across the U.S. and the globe, the industry of third-party litigation financing has grown exponentially, fueled by hedge funds and others who sink big money into helping people press their legal claims, in exchange for a significant cut of the proceeds.
According to information published by global law firm Brown Rudnick, lawsuit funding companies generally reap returns of 300-400% on their investment, usually from settlements. Those returns hold up even when other investment types may suffer amid downturns and other difficult market conditions.
The growth of such litigation financing, however, has also raised alarm, particularly among those typically targeted by such lawsuits in places like Cook County and Madison County in Illinois, and other historically plaintiff-friendly legal venues.
These groups, such as the U.S. Chamber of Commerce’s Institute for Legal Reform, have pushed for greater transparency, to force plaintiffs and their attorneys at least to reveal who is financing and driving their claims, and with whom defendants may actually be negotiating.
Such transparency measures have been enacted in some jurisdictions. Wisconsin, for instance, passed such disclosure rules into law in 2018.
But such reforms have been harder to come by in most states, including Illinois, where the Democratic supermajority in the Illinois General Assembly draws considerable campaign funding from the trial lawyers and their lobby.
The Illinois Trial Lawyers Association is publicly backing the new proposed law.
J. Matthew Dudley, president of ITLA, did not reply to a request for comment from the Cook County Record.
SB1099, for instance, would give borrowers 14 days to rescind their contract and claims to bar the lawsuit investment firms from having any role “in deciding whether, when, and how much the legal claim is settled for” or from interfering “with the independent professional judgment of the attorney” who is handling the lawsuit.
The legislation also caps the interest rates the so-called consumer legal funding companies can charge, among other items.
The legislation sets that top rate at 18%, assessed every six months, for 42 months.
The measure was created in February 2021, introduced by Illinois State Senate President Don Harmon, D-Oak Park. The Illinois State Senate approved SB1099 in February 2022, handing if off to the Illinois House.
The measure briefly was sponsored by Illinois House Speaker Emanuel “Chris” Welch. That sponsorship has since been taken by State Rep. Curtis J. Tarver II, D-Chicago.
Tarver serves as vice chairperson of the Illinois House’s Judiciary – Civil Committee, where the legislation is currently assigned for review. The committee is scheduled to consider SB1099 at hearing on March 23 at 8 a.m.
The current General Assembly session is scheduled to end in early April.
SB1099 has drawn quick opposition from many quarters. A coalition of insurers, manufacturers and other business groups have taken official positions opposing the new law.
These business groups warned the measure, passed without any transparency and disclosure requirements, would unleash new waves of litigation against businesses, while leaving plaintiffs subject to “egregious” interest rates.
Even though the bill includes language forbidding financiers from interfering in the prosecution of legal claims, the business groups assert such meddling is unavoidable, as those paying the bills will seek to safeguard their investments and maximize their returns.
Particularly, they warn the law could enable the litigation process to grind even more slowly, depriving plaintiffs of the ability to settle cases quickly, at a time when the money may prove particularly beneficial to the plaintiffs.
The American Property Casualty Insurance Association, for instance, warned the new law would “make settlements harder to achieve” the 18% semi-annual interest rates allowed under SB1099 would “leave consumers with little recovery of their own.”
The APCIA noted passage of a bill specifically allowing for such potentially predatory lending practices would be ironic coming from the state’s Democratic majority, which has in recent years prided itself on cracking down on so-called predatory practices in finance and other industries.
Those sentiments were echoed by the Illinois Manufacturers Association, which also has formally opposed SB1099.
“Illinois’ judicial system should not be a money-making machine for secret investors who will line their pockets at the expense of injured consumers,” IMA President and CEO Mark Denzler said in a prepared statement.
“Use of these secret lawsuit lending arrangements will increase legal costs and frivolous lawsuits, reduce the number of settlements, and diminish awards for injured parties. We need real legal reform to restore fairness for all parties.”
Opponents warned failure to address potential abuses in the lawsuit funding business will ultimately lead to higher costs for all in Illinois, fueled by an ever-growing “tort tax” of thousands of additional dollars paid by American households every year to cover the costs of so-called “abusive litigation” tacked onto all goods and services.
“Spiraling litigation costs affect everyone: individuals, families, businesses, communities, and the economy,” said Jeffrey Brewer, a spokesman for the APCIA. “We support the enactment of meaningful reforms to advance a balanced civil justice system; one that is fair to all participants, promptly resolves legitimate claims, and increases certainty and predictability for all participants.”
Editor’s note: The Cook County Record is owned by the Institute for Legal Reform.