Representative Kevin Hern has introduced a new bill aimed at regulating the third-party litigation funding (TPLF) market. The legislation, titled HR 3512 or the Tackling Predatory Litigation Funding Act, seeks to provide relief for the middle class and curb frivolous lawsuits. Senator Thom Tillis is spearheading a similar initiative in the Senate.
“Third party funders shouldn’t be allowed to meddle tax-free in the American legal system,” said Rep. Hern. He further emphasized that “frivolous lawsuits have gotten out of control in recent years, largely because of these third-party funders fueling a market that is ballooning.” The proposed taxation on these entities aims to limit unmeritorious lawsuits and offer economic relief.
Senator Tillis echoed these concerns by stating, “Predatory litigation financing allows outside funders, including foreign entities, to profit off our legal system, driving up costs and delaying justice.” He highlighted that the legislation would introduce transparency and accountability by taxing profits from TPLF activities.
The TPLF market currently stands at $15 billion and is projected to double within five years. This growth incentivizes frivolous litigation and imposes a “tort tax” on consumers. The new bill proposes taxing TPLF profits at a rate equivalent to the highest individual income tax rate plus an additional percentage. Importantly, this tax targets only third-party funders with formal agreements exceeding $10,000 and excludes simple loans.
A coalition of 18 organizations supports these measures, including groups like the American Consumer Institute and Americans for Tax Reform.
