The Ohio Chamber provided proponent testimony before the Senate Judiciary Committee this week on legislation to bring transparency to a little-known practice known as third party litigation funding. The legislation – Senate Bill 94 – sponsored by Sen. Steve Wilson is an important tool in improving Ohio’s legal and business climates.

In Ohio, third party litigation funders utilize a section of Ohio’s Commercial Transaction statute to make a cash advance to a consumer who has a pending civil lawsuit in exchange for the right to receive an amount of any potential proceeds. These cash advances are non-recourse meaning that the consumer would not have to pay back the funder if the proceeds of their lawsuit fail to cover the cost of the advance. However, interest rate caps and other consumer protections do not apply to these advances.

The presence of third-party litigation financing negatively impacts Ohio’s legal climate because it introduces problematic incentives that can prolong litigation and increase the number of frivolous lawsuits. When a plaintiff has entered into a financing agreement with a third-party financier, the plaintiff may reject reasonable settlement offers because he or she knows a portion of that settlement must be repaid to the third-party funder. In turn, the decision to reject these settlements drives up legal costs for businesses and may hamstring their ability to grow and reinvest into their business.

Third-party funding also can lead to more speculative lawsuits since these financiers are willing to advance a relatively small amount of money on a riskier lawsuit knowing it could payoff with a large settlement amount.

Senate Bill 94 begins to address the issued raised by requiring financing agreements between consumers and third-party litigation funders to be disclosed to the other parties in the lawsuit. This disclosure bolsters Ohio’s legal climate by preventing a secretive funding source with an interest in the outcome of the lawsuit from remaining concealed to other parties.

The Ohio Chamber will continue speaking to lawmakers and advocating for the passage of SB 94 because transparency in third party litigation funding is badly needed.