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Regulation in Consumer Litigation Finance

The litigation finance industry has been referred to as "the wild west of finance."  You’ll find many articles on the web pointing to interest rates in excess of 100%.  You may be asking yourself one, isn’t that usury and two, why would anyone in their right mind pay that much?  Well it’s not technically usury.  Under the current laws usury applies to loans and since repayment is contingent upon the outcome of a lawsuit, it’s not considered a loan.  People are willing to pay this much to borrow money because they have no other options.  If you’ve been in an accident, are out of work, have no savings and a low credit score what other options are there?  Also, when the plaintiff repays the amount owed, it comes from the proceeds of their lawsuit so they don’t feel it as much as if it were coming from their paychecks.

Hypothetical Lawsuit Loan Examples

If you're researching lawsuit loans and wondering how they work a hypothetical example may help you understand the process.  

Case 1: Motor Vehicle Accident

A plaintiff was rear ended in a car accident where they suffered bulging and herniated discs of the neck from whiplash.  The plaintiff will be out of work for a few months.  The plaintiff’s rent and car payment is due at the end of the month.  They have exhausted all their savings and due to poor credit are unable to borrow money from a bank.  The lawyer thinks the client’s case is worth $50,000, but the insurance company has only offered $10,000.  Because of the state court’s heavy caseload, the lawyer informs their client that the case will take approximately 12 months to settle.

Option A. The client decides to take the $10,000 offer in opposition to their attorney’s advice.  After the attorney takes a third of the settlement in fees and the medical providers take another $2,000, the client is left with $4,700.

Lawsuit Loans – Not Actually Loans

If you’ve been injured in an accident and need cash to cover expenses you may be searching for a lawsuit loan.  While a lawsuit loan is the most common search term for plaintiffs looking to borrow money against their case, it is not actually a loan. 

You may be wondering if you borrow money and have to pay it back, how is it not a loan?  Well, in the event that you lose your case, you won’t have to pay back the money you borrowed. 

First and foremost it’s important to note that while the term “lawsuit loans” is commonly used to search for pre-settlement and post-settlement funding, they are not actually loans. 

Investor Funding Lawsuit Against Carlyle Group

The Wall Street Journal recently published an article titled “Burned Carlyle Investor Backs Suit Against Private-Equity Firm.” 

The plaintiff is Louis J.K.J. Reijtenbagh, a Dutch investor who lost $60 million investing a fund titled Carlyle Capital Corporation, Ltd.  Carlyle Capital Corporation invested residential mortgage backed securities (MBS) tied to home mortgages in the United States.  In 2008 when the housing market collapsed, Carlyle Group was forced to liquidate the fund. 

In addition to Reijtenbagh and his affiliated companies suing Carlyle, there is also an entity representing the interests of other shareholders called Defendant Stichting Recovery CCC (“SRCCC”).  A “stichting” is a corporate entity formed to pursue what would be considered a class action suit in the US.  The formation of this entity speaks to the fear class action lawyers and firms have for litigation finance. 

How to pay Medical Bills after an Accident with No Insurance

If you’ve been injured in an accident that wasn’t your fault and you have no insurance there are a couple of options.  Accidents are stressful.  You may be out work, you may be struggling to pay your bills on top of being in pain from your injuries.
 
No Fault States
In some states there are no fault insurance laws, which allow claimants to cover medical expenses from their own insurance company regardless of who was at fault for the accident.  You can’t sue the other party until you either reach a threshold.  Florida, Michigan, New Jersey, New York and Pennsylvania require a verbal threshold (i.e. serious injury – like a fracture in New York). Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah use a monetary threshold (i.e. specific dollar amount minimum – Hawaii is $5,000). 
 

Sell Your Structured Settlement | Structured Settlement Loans

There are two types of people who receive structured settlements

  1. Those being compensated from personal injury lawsuits
  2. Lottery winners

Structured settlements are designed to replace the income lost due to an injury to the plaintiff (and help the insurance company paying their settlement stay solvent) and so a lottery winner doesn’t squander their wealth.  While they have good intentions, there may come a time where the recipient needs a lump sum instead of periodic payments.  Recipients can sell their payments to a third party for a lump sum.  The amount they receive varies from company to company so it’s important to shop around.  You can sell a portion of your structured settlement rather than the entire thing.  For example you could keep 40% of the payments and give 60% of the payments to a third party in exchange for x amount of dollars.  Beware of offers that sound too good to be true or that can be completed in just 24 hours.  Structured settlements are complicated and take time. 

Litigation Finance Compared to Other Subprime Lending

Litigation finance has many similarities with other forms of subprime lending, but it’s important to note the differences.  Historically, subprime borrowers were defined as having a FICO scores below 640, but this figure has changed over time.  These loans are characterized by higher rates, poor quality collateral, and less favorable terms in order to compensate for higher credit risk.
 
Litigation finance can carry higher rates compared with alternative forms of borrowing.  However, borrowers who seek out litigation finance often have no or low credit scores.  The collateral is their lawsuit and the outcome is unpredictable.  Litigation finance is unique in that it provides liquidity to an illiquid asset.  The money can be advanced in as little as 24-48 hours from the time of application, but usually no sooner than 90 days after the accident occurred.  Because the money advanced is based upon the case, a credit check is irrelevant.  As long as the facts of the case are known, the litigation finance company can offer a dollar amount relatively quick.  However, it is difficult to estimate the value of a case if the accident has just happened and the client is still treating.  Usually you won’t be able to borrow until 90 days after your accident depending upon how serious your injuries are. 
 

Does Pre-settlement Funding Promote Frivolous Lawsuits?

We all remember that scene from the movie Liar Liar where the Fletcher’s Secretary Greta, describes a frivolous lawsuit as she's quitting.  “Mr. Reede, several years ago my friend had a burglar on her roof, a burglar, he fell through the kitchen skylight, landed on a cutting board, on a butcher’s knife, cutting his leg.  The burglar sued my friend, he sued my friend and because of guys like you, he won.  My friend had to pay the burglar $6,000.  Is that justice?”  Fletcher, incapable of telling a lie responds, “No, I’d a got him ten.” 
 

Is Lawsuit Settlement Funding Usurious?

Usury was once defined as the interest paid for the use of money.  Various religions considered charging any interest on borrowed money usury.  In present times we know usury to be an exorbitant amount of interest, charged above the legal rate.  Many states have their own laws and specific rates.  Most state laws share the following components of usury detailed in the Ives

How Champerty Can Help Disadvantaged Plaintiffs

Champerty
Champerty is an illegal agreement in which a person with no previous interest in a lawsuit finances it with a view to sharing the disputed property if the suit succeeds.  Champerty has been frowned upon since the practice of law began.  It is argued that champerty promotes frivolous lawsuits, drags out settlements and increases damages but th
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