With powerful lobbyists on both sides of the issue, lawmakers in several states, including Illinois, continue to grapple with the question of how to regulate a growing industry linked to consumer litigation. But a new law in Vermont shows it can be done.

After a year of scrutinizing consumer lawsuit lending in the state, Vermont legislators passed a law setting stricter boundaries on the emerging industry, with the goal of setting clear rules and protecting consumers.

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The issue has been controversial since before it came to the U.S. On a grander scale, third-party litigation funding has become a way for investors to speculate on judicial outcomes to make money. Deborah Hensler, a professor at Stanford Law School, who has expertise in the higher value commercial financing of litigation, told the Record she has mixed views on the consumer side of the spectrum.

For medical malpractice or product liability claims that take a long time to resolve, a plaintiff may need help covering medical expenses or lost income. Taking out a loan may be attractive to avoid taking a settlement too early in the course of the trial. But that doesn’t justify some lenders fees that can leave the plaintiff with little at the lawsuit’s conclusion, Hensler said.

“This can be a very bad deal for the plaintiff, who may not be well-informed about how easy or hard it will be to settle her case or for how much,” she said. “In other words, there is considerable risk of exploitation. In my view this puts at least some lawsuit lending in a similar category to payday loans, which serve a need but often at an immense cost to borrowers.”

She would like to see the dispute resolution process become more efficient to reduce the need for lawsuit lending. She also supports limiting what lenders can charge and would require lawyers and lenders disclose more information, such as the range of possible outcomes and how long the matter could last, so plaintiffs are well informed.