Settlement Loans: The Bane of Personal Injury Lawyers

The lure of a settlement loan is clear: upfront 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 the Companies Can Charge What They Do

Victims face challenges in getting a fair loan against their settlement proceeds

Victims face challenges in getting a fair loan against their settlement proceeds

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 (2018 update since taken down) 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. [Update: I actually did get a call but it was not that angry.] But I am saying most do. I got a settlement loan repayment plan that I just received yesterday from a wonderful client who really has no choice but to get advance funding  (which precipitated this blog post/rant). It underscored for me once again the insanity of the terms of some personal injury lawsuit loan agreements.

What to Look Out For When Getting an Injury Settlement Loan

If you need to get an injury settlement loan, you are going to first need to get the cooperation of your lawyer.  We don’t like it when our clients get loans. But our clients are adults and when they need a loan, we help guide them on a path where at least they are ripped off as little as possible.  The big trick with these loans is the fees.  The interest rate does not sound as preposterous as the effective rate of the interest because there are so many somewhat hidden fees. 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.

What to Do If You Have No Choice

If you have no choice but to take out a settlement loan, first really question the premise.  Are you absolutely sure that you want there is NO OTHER WAY than litgation funding?  If there really is no credit card, no friend, no options, just call at least 5 different companies and have them send you the paperwork.  Read it carefully or make sure your lawyer does.  Sometimes, focusing on the interest rate is a mistake because it is all of the random fees that get you.  Find the lowest effective rate and run with that one.

One Final Problem: Discoverability

In Miller UK Ltd. v. Caterpillar, Inc., two commercial defendants faced off over something about the misappropriation of trade secrets  The plaintiff got litigation funding.  The defendant demanded discovery on the documents provided to the third party funders.  The plaintiff objected, arguing the attorney-client privilege and the work product doctrine.  But the court found that at the end of the day, documents like this send to a third part are not protected.  Now we have never put anything in one of those applications we feared would harm us if discovered.  But it does not give you a warm fuzzy feeling to give defendants those documents.

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