Key Takeaways
Though large-scale regulations have yet to be implemented, legislators and regulators in the United States and abroad are increasing their attention on third-party litigation funding, suggesting that legislation targeting this industry is on the horizon.
Recent legislative activity in the United States and European Union has targeted third-party litigation funding ("TPLF"). In the United States, the One Big Beautiful Bill Act initially included a proposal to increase taxes on profits from litigation funding from the 15 percent capital gains rate to a new rate of 31.8 percent. The provision was removed from the reconciliation bill because the Senate Parliamentarian advised lawmakers that it did not comply with Senate rules. Proponents of the provision, including the U.S. Chamber of Commerce, may continue to seek avenues to advance heightened taxes.
Europe has also explored regulations related to litigation funding. In September 2022, the European Parliament adopted a resolution instructing the E.U. Commission to study and promulgate proposals to regulate TPLF. In evaluating potential regulations, the Parliament requested that the Commission explore the following: (1) an authorization system for third-party funders to ensure adequate safeguards, (2) an obligation of third-party litigation funders to act in the best interests of the claimant, (3) a requirement that funders have sufficient funds to meet financial obligations, (4) conflict of interest safeguards, (5) a prohibition for funders to abandon claimants, (6) at least 60 percent of the gross settlement or damages going to the claimants, and (7) a requirement that courts be informed that the litigation is funded by third-party litigation funders.
After several years of work, which included extensive fact findings in 27 E.U. member states, in March 2025, the Commission presented three regulatory approaches:
- No regulation: This approach suggests that there is no evidence of harmful effects from TPLF and maintains the status quo, relying on contracts and consumer protection laws.
- Light-touch regulation: This would introduce basic regulations while ensuring that TPLF remains viable.
- Strong regulation: This could potentially eliminate TPLF activity by introducing a regulatory framework that requires funder licensing, capital adequacy requirements, fiduciary duties, mandatory disclosure of funding agreements, and regulatory oversight.
Though the Commission did not endorse any of the three approaches, many industry experts expect that the European Union will likely adopt a light-touch regulatory approach as it was favored by the principles on TPLF by the European Law Institute.
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