The companies are all over television, advertising usually at the same time as many personal injury attorneys who advertise on television. They are lenders, such as Peachtree financial and Oasis financial, who tell you that they will advance the money to you that you will potentially receive when your personal injury case settles. It is a practice known as pre-settlement funding or litigation lending. Many of my clients have asked me about working with these companies. The short answer is – NEVER. Here is what you need to know before signing up.
Personal injury cases do not ordinarily settle quickly. The injured party has to obtain medical treatment for several months or more and then the attorney has to undergo a lengthy process of negotiating with the insurance company. Furthermore, if the insurance company is unreasonable, the case may need to be litigated. During this time, the injured party may be out of work and may have medical bills and/or other expenses piling up. In comes, a pre-settlement funding company offering to lend you the money to pay those bills so that you do not have to wait for your injury settlement. The catch – some of these companies charge as much as 200% interest!!! Yes, 200% interest. It is no surprise to find out that this type of loan arrangement was first conceived of by an indicted loan shark out of Las Vegas. And as of right now, the practice is legal. Rhode Island, however, now has a bill pending that looks to cap such loans at an interest rate of 21%. I certainly hope that it passes because these loans are predatory and victimize accident victims.
I sadly had one client, who I represented for an auto accident, fall victim to this type of loan. I begged the client not to take out this loan because I knew that the contract was awful and the loan was essentially a scam. Nevertheless, he convinced me by saying that he might lose his apartment if I did not sign the paperwork. I conceded. He took out a mere $500 and when his case settled a few months later he owed $947 in interest and fees. He paid almost double to the lender after less than six months.