Many Americans try their luck at the roulette wheel in Las Vegas or even their favorite sports betting app. These are unique American pastimes that match luck with risk and skill (we write a lot about legalizing some of this!)
While chips are collected and prop bets are wagered, though, there are even more high-stakes gamblers placing bets on legal processes that impact us all: the outcome of lawsuits in our public courts.
This arrangement, known as third-party litigation finance, is a booming trend in U.S. civil courts. Litigation funders are hedge funds, credit lenders, and venture capitalists who front legal costs in exchange for a percentage of any monetary reward. They offer financing to legal firms and plaintiffs fighting major class action lawsuits and tort cases they normally couldn’t afford.
I’ve written about the rise of the third-party litigation finance industry, an estimated $13.5 billion behemoth that’s become a playground for venture capitalists, IP-busting foreign firms linked to the CCP, and become a rally flag for other types of consumer groups with questionable ties.
And now, for the first time, we have some data on what this costs people like you and me.
THE DATA IS IN, JACK
A new study reveals what consumer advocates and judicial reformers have been warning about for years: third-party litigation funding isn’t just changing how lawsuits work—it’s making them significantly more expensive for everyone involved.
A new report crunched by The Perryman Group and commissioned by Citizens Against Lawsuit Abuse (CALA) reveals that wayward third-party litigation funding is costing each family over $600 a year.
Here’s some other figures to ponder before you join that hot tip and place a bet on the next case at your local courthouse:
- More than $31 billion in added costs that increase inflation in hard-hit sectors like insurance and liability management
- A staggering 454,450 jobs lost every year as companies are forced to shift resources to legal departments rather than specialized employment
- $54 billion lost down the drain just in economic output alone, depriving consumers of innovations they depend on
- and more than $15 billion in tax losses for every level of government in the country
The full PDF has the numbers down to all the nitty gritty details, but this is the kind of stuff that raises the prices of your ordinary consumer goods and services like drugs and insurance policies and especially hitting the transportation and retail sector as well as construction.
Consumers are forced to care about this because it represents exactly the kind of opaque, extractive financial practice we fight against in other contexts.
PROXY BATTLES FOR YOUR WALLET
As I’ve written before, litigation finance transforms our courts into proxy battlegrounds for high-stakes finance. Investors who can stomach the risk chase outsized returns, with the funding industry ballooning to a $13.5 billion business in just a few years.
The mechanics are straightforward but concerning. Third-party funders provide capital for lawsuits in exchange for a cut of any settlement or verdict. While this can help smaller plaintiffs access justice, it also encourages cases to be prolonged and creates incentives for excessive verdicts. Swiss Re Institute research shows plaintiffs actually receive less when these investors get involved—dropping from 55% of awards without funders to just 43% with them.
This isn’t about opposing access to justice. Plaintiffs with legitimate claims should be able to pursue them, even without deep pockets. But there’s a difference between leveling the playing field and inviting hedge funds and Wall Street types to profit from human suffering and complex legal disputes.
What’s needed is straightforward: mandatory disclosure of funding arrangements, reasonable caps on funder returns, and clear rules about conflicts of interest. If litigation funders want to participate in the justice system, they should do so transparently—not as shadow investors gambling with other people’s legal rights and the price we pay at the checkout counter. We need simple legal reform.
SOME QUICK FIXES
California Congressman Darrell Issa’s Litigation Transparency Act represents a crucial first step, requiring disclosure of third-party funding in federal courts. Americans deserve to know who’s gambling on their judicial system and who stands to profit from courtroom verdicts.
Another important step is making sure proceeds from these transactions aren’t encouraged by the tax code. The Tackling Predatory Litigation Funding Act, introduced by Senator Thom Tillis (R-NC) seeks to add transparency and tax fairness by treating third-party lawsuit proceeds as ordinary income and requiring disclosure of outside financial interests.
It made its way into President Trump’s “One Big Beautiful Bill“ but was stripped out due to a bizarre last-minute campaign about how litigation finance is vital to “dismantling woke companies“. Okay, boomer.
What’s clear is that we need a justice system that prioritizes fair compensation for legitimate harm, not one that rewards financial speculators for prolonging lawsuits and inflating verdicts.
The stakes are clear: either we reform litigation finance and reclaim billions in economic activity, or we continue paying this invisible tax that enriches those who exploit our system while making everyday life more expensive for working families.
Those gambling on the outcomes of our judicial system should be able to take the risk, but we deserve to know who they are—and what it’s costing us.
Yaël Ossowski writes about legal reform and is deputy director at the Consumer Choice Center.
