In for a Penny and Out for Profit: A Federal Approach to Consumer Third-Party Litigation Funding

The third-party litigation funding market in the United States is growing at a tremendous pace. The pace of regulation, however, is far from commensurate. Third-party litigation funding, or TPLF, is currently regulated by a patchwork of state regimes that draw on usury prohibitions, bespoke statutes, and the ancient common-law doctrines of champerty and maintenance. Although TPLF is not regulated at the federal level today, the Howey Test from the U.S. Supreme Court’s 1946 decision in SEC v. W.J. Howey Company provides a flexible standard through which TPLF agreements can be brought under the regulatory purview of the Securities Act of 1933 and the Securities Exchange Act of 1934. This Note argues that consumer TPLF agreements should be regulated as investment contracts under existing federal securities law, rather than as loans at the individual state level.