The Legal Examiner Mark The Legal Examiner Mark The Legal Examiner Mark search twitter facebook feed linkedin instagram google-plus avvo phone envelope checkmark mail-reply spinner error close
Skip to main content

Yesterday, the New York Times shined a light on the growing business of lending money to plaintiffs in exchange for a lien on thier personal injury lawsuits. This business, which the industry wants to characterize as an investment in the lawsuit rather than a secured loan to the plaintiff, has exploded in recent years. Banks, hedge funds, and private investors have started companies all over the country which advertise on TV and send unsolicited letters to people who file lawsuits and to plaintiff’s attorneys emphasizing that they offer quick and easy money. What they rarely emphasis are the interest rates charged for such loans.

This industry, which now lends plaintiff’s more than $100 million a year, is not regulated in most states, which means that usury and other laws designed to protect people who borrow money from most other kinds of lenders do not apply to lawsuit lenders. Unrestrained by laws that cap interest rates, the rates charged by lawsuit lenders often exceed 100 percent a year, according to a review by The New York Times and the Center for Public Integrity. Furthermore, companies are not required to provide clear and complete pricing information — and the details they do give are often misleading.

In one example cited by the New York Times, a plaintiff involved in the Vioxx litigation borrowed $9,150 from Oasis Legal Finance, pledging to repay the loan from any recovery he received in the litigation. This was a fairly risk-free loan for Oasis because, at the time of the loan, the Vioxx litigation had already settled and the projected payouts to the borrower were already relatively easy to calculate. Oasis nonetheless imposed its standard interest charge: 50% of the loan amount if repayment was made within six months, with increasing percentages after six months. In the example cited, by the time the borrower received the first installment of his settlement 18 month later, he owed $23,588 on his $9,150 loan. That’s over 150% interest.

There are two sides to every story. The lawsuit lenders’ side is that they are not lenders but rather investors. Their argument is that plaintiffs are not required to repay the money if they lose their case. The industry takes pains to refer to these transactions as investments, advances, financing, or funding–anything but loans. Companies also say that they must charge high prices because betting on lawsuits is very risky. Borrowers can lose, or win less than expected, or cases can simply drag on, delaying repayment until the profit is drained from the investment.

The state of Colorado, for one, is not buying the companies’ argument. Colorado filed suit in December against Oasis and LawCash, another lawsuit "investor," charging them with violating the state’s lending laws. “It looks like a loan and smells like a loan and we believe that these are, in fact, high-cost loans,” John W. Suthers, the state’s attorney general, said in a recent interview. “I can see a legitimate role for it, but that doesn’t mean that they shouldn’t be subject to regulation.”

The Colorado AG’s argument seems well-balanced. In fairness to the industry, no one is forcing plaintiff’s to borrow money from lawsuit lenders, and, in most instances, the plaintiffs who do borrow from these companies are in desparate need of money which they cannot borrow from any other source. It’s a Catch-22. A plaintiff suffers a disabling injury through no fault of his own and cannot work. He or she has likely called his personal injury attorney and been advised that it is unethical for his or her attorney to lend him or her money. The bills are mounting and he or she sees an advertisement for quick and easy money which can be repaid from his or her lawsuit. The legislative answer seems to, at a minimum, require greater transparency and disclosures. Borrowers should know exactly how much money they will have to repay.

There is another answer, though, and that involves plaintiffs attorneys. When we learn that our clients are contemplating accepting such a loan, it is incumbent upon us to know the details of the loan and explain them to the client. The Times article talks about a former applicant screener for Whitehaven Plaintiff Funding who said he was told not to mention the cost of loans unless asked directly. He said he screened 50 to 60 calls a day from plaintiffs and their lawyers, and most never asked about the price of the loan, which at Whitehaven was as high as 99% of the loan amount in the first year.


  1. Gravatar for Danny Feldman

    The problem is that the client often is desperate and even though you explain that a $2,500 "loan" may end up costing $10,000, they often don't care. Of course, when the case is ready to settle and the client wants to know what they get "in their pocket" all of a sudden the $10,000 that they agreed to repay becomes a big deal. Obviously the value of a case is the value of a case and just because the client has agreed to pay an egregious amount of money to one of these companies does not make the case have more value. These "loans" often make it impossible to settle what should have been a settable case. Frankly, I don't know what the answer is - because while full disclosure obviously should be a given, in many instances, the client's desperate circumstances (or naivety or poor decision making, as the case may be) makes clients willing to enter into these ridiculously one sided agreements.

  2. Well, as the only provider of this service who is also an Injury Board member, I must chime in. I will be posting on this topic, shortly, but I was (and still am) out of town on business when the story hit. It is easy to paint all members of an industry with a broad brush. Are all trial lawyers "money-grubbers"? "Greedy"? I fought those characterizations for years when I practiced law. The "bad guys" seem to spoil it for the "good guys". And the insurance companies and the Chamber pounce whenever they see an opening to do so. That's how "Hot Coffee" and Injur Board were born.

    Lawsuit funding is the practice of placing money in the hands of someone who you don't know, who has a personal injury case being handled by an attorney who you may or may not be familiar with, collateralized only by paper work that can be presented in a light favorable to funding, but may not necessarily be an accurate portrayal of settlement or verdict likelihood, with no sure time table for repayment. And, then, the lawsuit funding company excuses the whole thing if the case fails. Is it really that surprising that such a service trends to the expensive side?

    Ask any banker if the process I descriv=bed above defines a "loan", which, by definition, requires "an absolute obligation to repay". I find it odd that some trial lawyers line up to level the same type of crticism that has been leveled at the personal injury legal profession, lumping all trial lawyers in the same boat. Not all lawyers are the same; not all lawsuit funding companies are the same.

    I am a big boy; I can handle the criticism. But what grinds me is that articles like the NY Times article ignore the core problem. And you guys are not calling them to task; instead, you seem to agree with the criticism. Whatever a lawsuit funding company charges for the risks it takes (and my company takes plenty of risk and has invested in plenty of case with bad outcomes)pales in comparison to what an insurance company profits by its "delay, deny, confuse and refuse" policies. These despicable companies take our premiums happily, making tons of profit on the money. Many people go a lifetime without any type of claims history. But, file a personal injury claim, just one, and you become the enemy of the "good neighbor", the "good hands" guys or the "fast, fair and friendly" crowd. They will try to "delay, deny, confuse and refuse" for as long as they can; they will use every trick in the book to prevent payment or simple fair treatment, even to their own policy holders. Ask lawyers who handle first party litigation! Finally, when the client is absolutely desperate, the insurance company will offer chump change and the client will often take the money to save his/her valuable assets. To avoid the chump change settlement, some clients turn to lawsuit funding companies.

    We are not all the same, just like trial lawyers aren't all the same. It is a mighty broad brush that the Times painted that article with. My company tries to provide our services as a revenue enhancement tool and/or to save a valuable asset. We do so compassionately and professionally, in the best interests of the client, case and attorney. We make sure that the funded amount comfortably fits into case value and we compromise for early and/or compromised case resolution. We provde our service professional to professional. I consider myself and my company your "partner" in the battle against the greedy insurance companies.

    Why there is a need for lawsuit funding services? Look to the insurance companies. Indeed, it is that industry that the NY Times should be investigating and writing negative articles about. Who is out front in providing the criticism? Look at Illinois, where so-called "Lawsuit Abuse" organizations are patting themselves on the back for causing the failure of a bill that sought to regulate the lawsuit funding industry. Are the "lawsuit abuse" guys people you trial lawyer professionals want to allign yourselves with? I don't think so. So, be careful what you wish for. Today, they attack my industry; tomorrow they attack yours. Their goal, to create a completely insurance company/big business friendly atmosphere in which to conduct the business of tort liability. They seek to limit liability and recoveries on all fronts. We are at war with them. And if you guys keep standing aside when they attack, you will become victims yourself. Lawsuit funding isn't a perfect solution: but it is almost always better than the alternative of settling too early for too little. As for me, I will continue to do what I have always done, work on behalf of injured victims, professionally and compassionately, as I have for the past 33 years as an attorney and 12 years as a lawsuit funding professional.

Comments are closed.

Of Interest