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Settlement Loans: The Bane of Personal Injury Lawyers

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.

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  • A.W.

    Nice blog. i like how even though you clearly sit on one side of the table more than another, you are not cheesy and always rooting for your “side.” I mean at overlawyered i ended up arguing for liability in a personal injury case even though i am usually defense side, and you argued against it even though you seem more plaintiff’s side. Which regardless of who is right or wrong, its cool to see people being principled about it as you obviously were.

    So Quick question on this, because i frankly haven’t had any experiences with these contracts… what happens typically if you are a plaintiff, and your client doesn’t get enough money to pay back the loan amount or the interest? Does the debtor now owe them the difference? And given that now the loan company has a financial stake in your case, do they have any right to control the case? Suppose the plaintiff suddenly decides to let off the defendant with a sincere apology, or a very low settlement; does the loan company have any recourse to prevent that, or to collect on the plaintiff?

    I am just wondering if there is possibly another concern: the encouragement of litigation.

  • dan tannen

    Are you sure they’re not the bane of the defendant insurance companies? Don’t they make it harder for them to stall until your client settles for less than he should?

    Where do you think the defense stands on leglislation to restrict them?

  • dan tannen

    Are you sure they’re not the bane of the defendant insurance companies? Don’t they make it harder for them to stall until your client settles for less than he should?

    Where do you think the defense stands on leglislation to restrict them?

  • Ron Miller

    To A.W. – I don’t think the loan controls the case and I think the Plaintiff could let the Defendant off with an apology because there is no recovery. This happens…hmmmm… rarely. But if the settlement loan is more than the client’s recovery, they cannot collect the difference from the client. But, realistically, the client won’t settle if he is getting nothing in 99.9% of the cases.

    To Dan: I actually do not know where insurance companies stand on this issue. Loans often make a case hard to settle. I have a case just like this right now that I can’t settle – with a policy limits offer of 50K – because to the outstanding loans. Give me any information you have and I’ll post it if the insurance companies are out there arguing for more restrictions on these loans.

    On my original post, I have offered loan repayment terms from one of these companies (I redacted the name of the company; I’m not here to call anyone out individually.) Do you think these are reasonable terms in a case where the defendant has accepted liability? I don’t think so. Should there be more regulation of these loans? I really don’t know what I think. I’m all over the map on the extent to which we should be protecting people from themselves. To quote President Obama, exact extent to which we are our brother’s keeper and where the line should be drawn is “above my pay grade.” Again, it bears repeating: not all of these companies are predators and loan sharks.

    Thank you both for the comments. You don’t have to agree with me to be heard here.

  • Settlement Loans

    Your right on the money, plaintiffs need to understand exactly what’s going on with their loan plan with a settlement loan provider; read the fine print people!