Lawmakers in Indiana, the latest state to regulate the growing litigation-funding industry, found common ground between the industry’s proponents and its critics in a consumer protection law that distinguishes lawsuit “sales” from loans—a key issue for funders—while capping the interest rates on litigants’ claims, a compromise that many predict will be replicated elsewhere.

The law, which goes into effect on July 1, caps at 36 percent the return companies can gain when advancing money to litigants. Funders also are limited on the service charges and fees charged to claimants.

Scott Pearson, a Los Angeles litigation partner at Ballard Spahr, called the Indiana law a “classic compromise” between a legal funding industry looking for regulatory legitimacy and the interests of businesses.

“What happened here is the funders got certainty and a stamp of approval from the legislature, and in exchange they got some pretty serious price controls,” Mr. Pearson said.


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