The lure of a settlement loan is clear: up front money. The interest rate for settlement loans? Imagine the interest rate that Gazzo (Rocky Balboa’s loan shark boss in Rocky I) must have charged. Then double it.
How do they get around usury laws that say you can’t take advantage of other people? How are these settlement loans not a dictionary definition of predatory lending? The backdoor is that the outcome of a car accident claim or lawsuit is theoretically uncertain. Yet our firm has a large number of auto accident claims where I could show up for trial drunker than Otis from Mayberry and still get money damages from the jury. Every single time. So getting enough to pay back the principal of the loan is fairly certain. Yet the theoretical uncertainty allows most settlement loan providers to charge whatever they want.
Vulnerable accident victims tend to ignore how much money they will owe tomorrow because they are focused on the lure of cash today. Our lawyers discourage our clients from taking these loans.
Interestingly, National Lawsuit Funding provides on its website a copy of an Ohio appeals decision that I think takes a logical view of these loans.
Before I get angry emails, note that I don’t think every lawsuit loan company charges usury rates and never performs a necessary function for some accident victims. But I am saying most do. Here is a sample settlement loan prepayment plan that I just received yesterday for a case (which precipitated this blog post/rant). It underscores the insanity of the terms of some personal injury lawsuit loan agreements.
Here is what cannot be disputed: I would own a baseball team if I started one of these companies. Recession proof business with virtually guaranteed returns.