Human Equity? Regulating the New Income Share Agreements

Abstract

A controversial new financing phenomenon has recently emerged. New “income share agreements” (“ISAs”) enable an individual to raise funds by pledging a percentage of her future earnings to investors for a certain number of years. These contracts, which have been offered by entities such as Fantex, Upstart, Pave, and Lumni, raise important questions for the legal system: Are they a form of modern-day indentured servitude or an innovative breakthrough in human financing? How should they be treated under the law?

This Article comprehensively addresses the public policy and legal issues raised by ISAs and articulates an analytical approach to evaluating and regulating these agreements. While there has been a nascent movement in favor of enacting overarching regulatory schemes to govern these new arrangements, this Article suggests that we should resist that trend because a unified approach is likely to create more problems than it solves. Instead, we suggest the adoption of a case-by-case approach that examines each ISA’s distinctive economics and draws analogies to more familiar financial arrangements in designing its legal treatment. Such case-by-case regulation is likely to generate rules that are more equitable and efficient. We offer a multifactor framework for implementing this “regulation by analogy.”  

Keywords: Income Share Agreements, Human Equity, Human Capital Contracts, Regulation, Regulation by Analogy, Pave, Upstart, Fantex, Lumni, Thirteenth Avenue Funding, Rubio-Petri Legislation, Income-Contingent Loans, Student Loans, Taxation, Bankruptcy, Securities, Consumer Protection

JEL Classification: G17, G22, G28, G33, G38, H20, H24, H25, H29, H52, I22, I28, J41, K20, K22, K34, L51