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Should Plaintiffs Take Advances on Potential Law Suit Gains?

January 18, 2011

The NYT reported Sunday on  the new law suit loan industry.  Our law firm experienced this new trend first-hand.  For decades, our clients could not obtain advances on their expected law suit gains.  This could be hard at times for the poor, the injured, the victims who could wait for years for justice if there was a trial and would settle for less than they deserve.  But, in 2002,   the Ohio Supreme Court overturned case law that made it illegal to loan to plaintiffs.  Now law-suit lending is commonplace in Ohio. 

Should a client borrow from Oasis or the other law-suit lenders?  The interest rates are unregulated as the speculative nature of a law suit win is viewed as a gamble.  We have seen clients charged fifty percent per year in interest or more for their loans.  Clients, facing such high rates of interest, can often no longer afford to wait for justice.  So, our firm strongly discourages taking loans unless the client feels there is absolutely no other alternative.  But, realistically, we live in a world where  insurance companies recognize the poor and the injured cannot wait for justice and will not settle cases early on as a matter of decency and fairness.  This is not all insurance companies, but it is unfortunately, a commonplace practice, to delay settlement so the weakest, the most vulnerable, the most damaged, are forced to accept far less than they deserve.   Even we recognize that lending has its place in an unfair world.

But, we, as lawyers, take with utmost seriousness the responsibility to our clients in peril.  Only a small percentage of our clients turn to loans because we counsel our clients and explain the dangers of accepting advances with high percentage rates.   We know when our clients ask lending companies for advances as these lenders turn to us for information about the law suits so they can ascertain the risk.   We, in turn, go to our clients and explain the impact of taking an advance of money on their case.  It may not be our legal responsibility, but certainly, we view it as our moral duty to do so. 

The most shocking fact to me in the NYT article is that the clients signed these contracts, willy-nilly, without apparent consultation with their lawyers.  Where were the lawyers when these poor plaintiffs were signing away the bulk of their potential settlements away?  This,  I do not understand.   

The NYT article follows: 

Lawsuit Loans Add New Risk for the Injured

Larry Long, debilitated by a stroke while using the pain medicine Vioxx, was facing eviction from his Georgia home in 2008. He could not wait for the impending settlement of a class-action lawsuit against the drug’s maker, so he borrowed $9,150 from Oasis Legal Finance, pledging to repay the Illinois company from his winnings.

Gary Tramontina for The New York Times

Carolyn and James Williams. Ms. Williams borrowed $5,000 in 2007 from USClaims while pursuing a disability suit. Her case is unresolved and her debt to USClaims stands at $18,976.

Betting on Justice

The Lenders’ Advantage

Articles in this series — which is a collaboration between the Center for Public Integrity, a nonprofit journalism group in Washington, and The Times — are looking at the growing practice of investing in lawsuits.

Ruth Fremson/The New York Times

“It’s not for everyone, but it’s there when you need it,” said Harvey Hirschfeld of LawCash.

By the time Mr. Long received an initial settlement payment of $27,000, just 18 months later, he owed Oasis almost the entire sum: $23,588.

Ernesto Kho had pressing needs of his own. Medical bills had piled up after he was injured in a 2004 car accident. So he borrowed $10,500 from Cambridge Management Group, another company that lends money to plaintiffs in personal-injury lawsuits. Two years later, Mr. Kho, a New Jersey resident, got a $75,000 settlement — and a bill from Cambridge for $35,939.

The business of lending to plaintiffs arose over the last decade, part of a trend in which banks, hedge funds and private investors are putting money into other people’s lawsuits. But the industry, which now lends plaintiffs more than $100 million a year, remains unregulated in most states, free to ignore laws that protect people who borrow from most other kinds of 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.

A growing number of lawyers, judges and regulators say that the regulatory vacuum is allowing lawsuit lenders to siphon away too much of the money won by plaintiffs.

“It takes advantage of the meek, the weak and the ignorant,” said Robert J. Genis, a personal-injury lawyer in the Bronx who said that he had warned clients against borrowing. “It is legal loan-sharking.”

Colorado filed suit in December against Oasis and LawCash, two of the largest companies, 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 companies, however, say that they are not lenders because plaintiffs are not required to repay the money if they lose their cases. The industry refers to the transactions as investments, advances, financing or funding. The argument has persuaded regulators in many states, including New York, that lawsuit lenders are not subject to existing lending laws. Oasis and LawCash have now filed suit against Colorado, asking the court to prevent the state from using lending laws to regulate the industry.

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.

To fortify its position, the industry has started volunteering to be regulated — but on its own terms. The companies, and lawyers who support the industry, have lobbied state legislatures to establish rules like licensing and disclosure requirements, but also to make clear that some rules, like price caps, do not apply.

Maine and Ohio passed the first such laws in 2008, followed by Nebraska last year. Sympathetic legislators introduced bills in six other states last year; the measures passed the state Senates in New York and Illinois…..

Article continues:

One Comment leave one →
  1. January 27, 2011 4:13 am

    This is a great article that brings up a very serious problem . You see this advertised on TV. The interest rates are so high. Unfortunately some clients are put between a rock and a hard place by their injury that they are desparate just to pay the bills they have in front of them. That’s why it so hard for me to understand why jurors are not more forthcoming with higher verdicts. One answer is the insurance industry propoganda.

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