The lack of regulation surrounding third-party litigation funding (TPLF) creates a significant legal loophole that could allow hedge funds, foreign investors and sovereign wealth funds to profit from U.S. lawsuits, delay justice and increase costs for taxpayers. What seems to be an obvious problem to fix has recently drawn scrutiny from “consumer” groups that argue for no regulation or transparency. Allowing predatory litigation funders to go unchecked will only hurt, not help, the U.S. taxpayers.
In less than 20 years, TPLF has grown into a $15 billion investment industry. Investors are often hedge funds or other money management firms looking to profit from a settlement or court award. TPLF investors are not “local” groups posing a threat; foreign actors using the TPLF may pose a national security threat.
These adversaries benefit from funding U.S. lawsuits, which enables them to gain access to business trade secrets through our courts and manipulate the market in ways that harm American innovation and competitiveness. This system comes at a cost for consumers, contributing to the soaring “tort tax” that all Americans pay. The 2025 “tort tax” is in excess of $1,600 annually per person, higher than in prior years. If lawmakers don’t get TPLF under control and properly regulated, America’s “tort tax” will continue to increase.
We hope that law firms voluntarily disclose outside involvement in their cases. Without mandatory disclosure requirements, there’s no way for judges, juries or defendants to know who’s behind a lawsuit, what their financial interests are, or whether a foreign entity is influencing the litigation for profit or political leverage.
State-level TPLF involvement has grown in recent years, with several states enacting or introducing legislation aimed at curbing abusive litigation finance practices. In 2023, Montana passed a law requiring TPLF disclosure, joining West Virginia and Indiana. More recently, legislatures in Texas, Florida and Louisiana introduced bills to impose stricter regulations or mandatory disclosure on outside litigation financiers.
In 2025, Georgia’s governor signed the state’s TPLF reform bill, which will go into effect in 2026.
These state-level actions show growing bipartisan concern about the influence of outside funding and further reinforce the need for a federal solution.
Legislation in the Senate could make real progress in regulating TPLF.
The Tackling Predatory Litigation Funding Act was introduced in May by Sen. Thom Tillis, R-N.C. If passed, the bill would impose a tax on profits earned by third-party entities that finance civil litigation and curb predatory practices in the litigation funding industry. While the bill must pass through the conference committee and other legislative hurdles, its inclusion in reconciliation marks a significant step in moving this vital legislation forward.
Many people and a coalition of 18 consumer groups agree and echo the call for legislative action to make TPLF more transparent.
Yet, some “conservative” groups are making a surprisingly strained argument against Tillis’ legislation. Suddenly, foreign-backed and anonymous financiers exploiting our courts are being cast as defenders of the “little guy.” That’s quite a switch for organizations that claim to champion transparency, national security and free markets. The idea that taxing outside financiers is somehow a win for “woke” corporations is simply incorrect, especially when it’s the current TPLF system that allows deep-pocketed investors to bankroll politically motivated lawsuits in secret, ultimately hurting American business innovation.
Conservatives rushing to aid trial lawyers with transparently unconvincing arguments risk inviting speculation that they have ties to the litigation funders who stand to lose most from this bill. These are, by and large, the same people who finance the political activities of progressives, making the small, yet vocal, opposition to Tillis’ bill such a head-scratcher.
These groups must realize that the legislation is the best option to close the large tax loophole that allows foreign and private equity-backed litigation financiers to profit tax-free from the American legal system. Many organizations supporting a congressional fix are urging members of Congress to pass the bill to protect consumers, taxpayers and businesses. It will be a significant win for all if this bill is passed into law with the bipartisan support it deserves.
