Nearly every attorney has likely experienced clients who desperately need financial help to make it through the lengthy process of a personal injury case. As legal representatives, attorneys concern themselves with the clients’ best interests. Therefore, when the subject of lawsuit funding for these individuals comes up, lawyers brace against the potential for these clients to potentially fall into the hands of loan sharks who have predatory tendencies.
However, many attorneys daily witness the financial difficulties experienced by clients whose lives have been seriously torn apart by the devastation of a tragic accident that has cost the victims lost wages, high medical bills, and lengthy periods of rehabilitation. Watching these individuals struggle to make it financially while their cases make it through the legal system creates a dire dilemma for attending attorneys. These lawyers must be certain, though, that vulnerable plaintiffs do not fall prey to deceptive, predatory systems.
Legal Funding for Plaintiffs
In the past, victims of accidents had no place to turn for immediate help financially. Credit unions and banks will not loan money if the candidate has no collateral other than a potential lawsuit recovery. Now, however, the tide has turned and the plaintiff has some options, including the ability to obtain funds through the vehicle of pre-settlement funding. Due to the fact that a plaintiff could potentially have to wait a very long time, sometimes years, for a lawsuit to be resolved, having the ability to get financial help to pay daily living expenses can be a huge relief.
Since the industry of lawsuit funding is still in its infancy, the regulatory environment is somewhat insufficient or even nonexistent in this regard. There are barely any regulations in most states, and in some, there are none. Texas, Florida, New York, California, and New Jersey have no oversight mechanisms in place to regulate pre-settlement lawsuit funding. As a result of such a murky regulatory environment, some plaintiffs have been exploited by litigation financiers.
In order to help attorneys successfully protect clients from unscrupulous legal funding companies, the following list of facts has been prepared. All attorneys should familiarize themselves with this information before signing a legal funding contract with a client.
Lawsuit Funding Facts
- Your client may have contacted a broker-in-disguise instead of a funding company. Brokers should not be representing their services as being direct funders.
- Brokers nearly always pass their fees on to the plaintiff. Brokers generally make a 10 to 20 percent commission on the amount a client is funded.
- Fees can go above 3.5 percent each month, compounded monthly, until the settlement of the lawsuit. At this rate, on a case taking 12 months, the amount owed would be over 70 percent with fees. Should a client’s suit take 24 months after the funding agreement is in place, the amount of interest owed by the client would be nearly 150 percent.
- Some funding companies charge more than $400 in application fees. Funders often do not require the app fee to be paid upfront, so it is added into the mix, and interest is also charged on this fee amount.
- Even on a small advance, a huge application fee may apply. For an advance of $1,000, some funding companies will still charge a $400 app fee. Therefore, from the very beginning of the funding agreement, a client owes an additional figure equal to 40 percent of the amount funded.
- A second funding company usually buys out the initial funder. If Company A gives the client an advance, then the client later applies to Company B, it is common for Company B to pay off the remaining interest owed to Company A.
- If a second funding company buys out the first advance, the new company owns the entire lien. Whatever rate the new company assigns will be the amount the client owes until the suit is settled.
- The fee structure is different for each funding company. The two fee structures generally used are; one involving compounded monthly interest or one involving a set payout amount every six months. It can be either fair or excessive, depending on the percentage rate charged.
- Some aggressive legal funding companies will over-fund the case for maximum profit. If clients’ cases are overfunded, the clients could lose all of their settlement funds in paying back the funding company. It is advisable that clients only make funding advances for an amount of up to ten percent of the conservative value of their cases.
- Regulations are constantly changing. Attorneys should continuously keep abreast of the regulations in their individual states. It is crucial to make sure everything contained in lawsuit funding agreements is in line with current regulatory guidelines.
- Funding companies do not always include a payoff table in agreements. Always inform clients of the amounts they will owe at upcoming six-month intervals. Professional legal funding companies provide such a table in the paperwork.
The Legal Funding Group Provides Trusted Settlement Loans
The Legal Funding Group has a proven track record of helping plaintiffs and attorneys manage financial security during the lengthy legal process of a lawsuit. Our settlement loans are fully transparent and trusted. All legal regulations and requirements are followed.
Perhaps you are unsure whether your case will qualify for pre-settlement legal funding. If you are an individual who is waiting for your settlement to be reached or finalized, contact us immediately to determine your options for gaining financial stability as quickly as possible. We may just have a lifeline for you.
