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Legal Financing for Consumers Explained

Legal Funding for Consumers Explained

Legal Financing for Consumers Explained. July 1st marked a landmark date for the legal funding industry: two states, Vermont and Indiana, enacted legislation regulating the litigation finance industry.

Trade organizations such as the American Legal Finance Association (ALFA) and The Alliance for Responsible Consumer Legal Funding (ARC) have pushed for unique regulation, pointing out that banking and loan regulations are not applicable to the industry because it operates on a factoring model rather than a direct lending model. Over the past few years, six states (Maine, Oklahoma, Tennessee, Arkansas, Nebraska, and Ohio) have passed regulations surrounding legal funding, including rate caps and state board registrations.

Legislation Includes Protections

Legal Financing for Consumers Explained. The legislation approved by Vermont and Indiana both include protections for attorney-client privilege, standardized contract language, and prohibitions against referral fees. They also clarify that consumer legal funding is not a type of loan, and is therefore not subject to traditional lending regulations.

Even in this tormented political climate, both the Vermont and Indiana regulations passed with bipartisan support. Perhaps that is because this legislation simultaneously protects individual and business interests, a rare accomplishment.

Balanced Bridge Celebrates New Laws

Legal Financing for Consumers Explained. It may seem odd that Balanced Bridge is celebrating these new laws even as we will be directly affected, but in fact, regulation is a good thing for our industry. It standardizes the practices that legal funding companies can use, improves relationships between funders and clients, and most of all, it makes the industry more transparent. Both consumers and legitimate funding companies benefit.

We look forward to seeing more positive changes in the industry, and hope that more states follow the examples put forth by Indiana and Vermont.

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