Don’t allow the unethical legal lending industry to profit off New Yorkers

It’s time to crack down on the skeevy lending practice that’s draining New Yorkers’ wallets.

It’s good news that a coalition of business, labor and government groups are calling on state Comptroller Tom DiNapoli and city Comptroller Brad Lander to look into whether state pension funds may be supporting third-party litigation funding (TPLF) — and urging divestment if they do.

But more needs to be done: The shady, unregulated industry needs to be reined in hard.

Even in cases where a plaintiff has a legitimate complaint, this racket isn’t much better than loan-sharking: Investors offer cash advances to cover living expenses and other costs while a lawsuit settlement is pending — and then charge sky-high interest rates of up to 200% if the plaintiff wins.

The most vulnerable plaintiffs, who can’t cover bills while they wait for a payout, are the most likely to take this raw deal.

And there’s plenty of evidence that such lending also encourages frivolous lawsuits by offering plaintiffs who don’t have a strong case (and the law firms that go out of their way to find people willing to sign onto bogus lawsuits) a win-win situation: If the lawsuit fails, plaintiffs pay nothing.

This raises conflict-of-interest concerns — as lawyers might be tempted to prioritize investors’ interests of over plaintiffs’ when considering a settlement — and national-security concerns, as foreign actors could use TPLF to tie up US businesses in lawsuits or try to access industry secrets through discovery.

And if that’s not enough, New Yorkers are paying through the nose for this practice: The increase in lawsuits has sent insurance costs through the roof, which is passed onto consumers.

Look at real estate, where such lawsuits have created “a general liability crisis” that has driven up the cost of building, warns Brian Sampson, president of Associated Builders and Contractors, which in March joined the Real Estate Board of New York in supporting reforms proposed by state Sens. Leroy Comrie and Jessica Ramos that would attempt to rein in litigation lending.

That’s not the only way third-party litigation funding is costing New Yorkers: It also encourages lawsuits (however flimsy) against the city: Settling cases fueled by cash advances could be costing taxpayers upward of $7 million per year.

It’s hardly a surprise that business leaders and city workers alike would prefer that state pensions don’t contribute to a parasitic cottage industry that makes big bucks by squeezing businesses, municipal budgets and regular New Yorkers.

Pull this leech off New York.

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