Representative Kevin Hern (OK-01) introduced HR 3512, the Tackling Predatory Litigation Funding Act to the House of Representatives this week, addressing the out-of-control third-party litigation funding (TPLF) market and providing much-needed relief for the middle class and curbing frivolous lawsuits. Senator Thom Tillis (R-NC) is leading the companion bill in the Senate. 

"Third party funders shouldn't be allowed to meddle tax-free in the American legal system,” said Rep. Hern. “Frivolous lawsuits have gotten out of control in recent years, largely because of these third-party funders fueling a market that is ballooning. Taxing these third-party entities will limit unmeritorious lawsuits and provide economic relief to the middle class." 

“Predatory litigation financing allows outside funders, including foreign entities, to profit off our legal system, driving up costs and delaying justice,” said Senator Tillis. “This legislation will bring much-needed transparency and accountability by taxing these profits and deterring abusive practices that undermine the integrity of our courts.”

TPLF allows investors, including questionable and foreign entities, to fund U.S. lawsuits tax-free, fueling a $15 billion market that is projected to reach $30 billion in just five years. TPLF incentivizes frivolous litigation, questionable trial lawyer tactics, and a “tort tax” costing consumers thousands of dollars annually. 

The Tackling Predatory Litigation Funding Act will tax TPLF profits at the highest individual income tax rate (37%) plus 3.8%. The tax will only apply to third-party funders of lawsuits with formal financing agreements and does not apply to lawyers or parties directly involved in the case. Deals under $10,000 or simple loans are excluded from the tax.  

The policies included in this legislation are supported by a coalition of 18 consumer, free-market, and taxpayer organizations, including the American Consumer Institute, Americans for Tax Reform, National Taxpayers Union, Taxpayer Protection Alliance, Advancing American Freedom, Citizens Against Lawsuit Abuse, and more. 

You can see the full bill text here. 

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