Mythbusting: Why the Critics of Litigation Finance are Wrong

Critics of ALF contend that such financing methods create various problems: they violate well-established principles of common law about the relationship between litigants and third-parties; they are tantamount to usurious loans; and they threaten the integrity of the judicial system by making it easier for litigants with few resources to bring frivolous lawsuits. This article discusses both sides of this debate and concludes that the most prevalent criticisms of ALF are based upon misconceptions and myths about the nature of ALF transactions and of the interests of the parties involved in those transactions. When ALF is carefully considered, it is not fundamentally different from a variety of financial arrangements that are widely accepted in different economic contexts. At the most basic level, the investment in a legal claim is much like the purchase of an interest in any other asset.

Bringing this kind of financial arrangement into the legal sector may threaten some well-established but outmoded assumptions, but it does not threaten the fundamental objectives of the legal system. To the contrary, ALF allows cases to be decided on their merits instead of being decided by the relative financial power of the parties.