Drowning in a Bucket: Nonrecourse Loans for Litigants

Ronen Avraham & Anthony Sebok, An Empirical Investigation of Third Party Consumer Litigant Funding, 104 Cornell L. Rev. __ (forthcoming), available at SSRN. Eyal Zamir Contracting parties often suffer from information problems, lack of expertise, and limited cognitive abilities. They sometimes make decisions under stressful conditions. There are always others happy to exploit these phenomena to make extra profits. One sphere in which such exploitation has attracted much attention since time immemorial is usurious interest rates. In their fascinating empirical study, Ronen Avraham and Anthony Sebok shed new light on this phenomenon in an expanding new market for credit—namely, Litigants Third-Party Funding (LTPF). These are nonrecourse loans, given by commercial firms to individual tort plaintiffs, which are then repaid from the proceeds of the lawsuit. Avraham and Sebok obtained a unique dataset of about 200,000 plaintiffs’ applications for loans handled by…

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