Senate panel considers SB 985 to regulate litigation funders; insurers and AG favor rules, industry and defense bar disagree on scope

Senate Bill 985, presented March 6 by Senator Alonzo Washington, would regulate third-party litigation financing (TPLF) in Maryland by requiring licensing, consumer disclosures and certain fiduciary duties for funders in class-action contexts.

Sponsor Washington told the Senate Finance Committee the bill is intended to protect plaintiffs who use third-party funding to cover living expenses or case-related costs while litigation proceeds. The proposal would mandate clear, prominent disclosures of contract terms, require funders to explain consumer rights and quantify the total amount a consumer would repay on a successful recovery, and impose statutory protections to guard against usurious or predatory agreements.

Supporters included the American Property Casualty Insurance Association, State Farm, the Maryland Chamber of Commerce and the Maryland Attorney General's Consumer Protection Division. Robert Anton of APCIA and Nancy Egan argued the transactions are functionally loans and that a licensing and disclosure regime is necessary to prevent excessive returns and hidden fees; they cited other states' experience and regulatory actions against funders.

Industry representatives and the Maryland Association for Justice, which represents plaintiff lawyers, opposed the bill as drafted. Eric Schueller of the trade association Alliance for Responsible Consumer Legal Funding said member companies welcome sensible regulation but argued a strict interpretation and certain disclosure requirements would make the product uneconomical and could put consumer legal-funding firms out of business. The Maryland Association for Justice said mandatory disclosure to defendants could harm plaintiffs strategically and invade privacy.

Committee questions focused on whether the transactions should be treated as loans, how disclosure and licensing would work in practice, and whether court rules already give judges authority to review funding agreements. Supporters pointed to Utah and other states that have enacted regulatory frameworks and cited example enforcement actions and consent orders; opponents pointed to ongoing litigation and urged careful drafting.

The committee did not issue a final vote and senators discussed technical amendments, including a proposal from State Farm to cap the portion of settlement proceeds a funder may receive and proposals to clarify discovery and inadmissibility rules to protect claimants' privacy and settlement leverage.