JEFFERSON CITY – Consumer lawsuit lending lacks regulation and transparency, according to the director of a watchdog group.
Bloomberg Law recently reported that short-seller Muddy Waters issued a report on litigation funding company Burford Capital's alleged "Enron-esque" accounting practices. In light of that report, Missouri Insurance Coalition Executive Director Attorney Brandon Koch said consumer lawsuit lending harms users by hiding excessive fees and interest rates and abuses the judicial system by prolonging and inflating lawsuits.
"Consumer groups recognize that the litigation funding industry preys upon the vulnerable, such as the injured tort victim who is pressed for time and unaware of the true cost of these financial products," Koch said.
Calling the Muddy Waters report "misleading," Burford Capital released a statement that also disputed Muddy Waters' suggestion Burford is "arguably insolvent."
"Presumably, the reason 'arguably' is inserted is because Muddy Waters knows they would lose a lawsuit if they accused Burford of insolvency, and they know they can't support such a claim," according to the statement.
Claims of solvency are secondary to consumer lawsuit lending undermining the integrity of the civil justice system, according to Koch.
"It inserts a third party into personal injury cases, which could compromise the interest of the litigants and lead plaintiffs to reject settlement offers for the chance to receive larger court verdicts, because the plaintiffs need to repay the funds received in the financing agreement," he said.
The recent report is not new news, according to Koch.
"The lawsuit lending industry's attempts to evade consumer loan laws and banking regulations are drawing scrutiny from attorneys general and other interest groups," Koch said.
He added the business community is concerned that the practice will reduce the opportunity for fair and efficient settlements of disputes.
"Plaintiffs' attorneys are worried about the effect on attorney-client privilege and interference in critical case decisions, including the decision of whether and when to settle," Koch said.