What you should know about Pre-Settlement Funding or So-Called Litigation Lending

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.

I have also had clients ask if I can forward an advance on the personal injury settlement. The answer to that question is always NO. It is not because I am uncaring, it is because our rules of ethics as lawyers clearly forbid such advances. I know that some attorneys in Rhode Island will loan money off of your settlement and I even know of an attorney who charges interest on such loans – but I assure you that it should not be done and you may want to reconsider who is representing you if they so readily violate the rules of ethics.

I understand that it can be very difficult when you are out of work due to an accident and bills and expenses pile up. Talk to your attorney and he or she may be able to make some phone calls to help alleviate the bills or delay payment until your case is ready for settlement. The right personal injury attorney should also work quickly to make sure that your case is resolved when it is ready and that it is not unnecessarily delayed. Always talk to your attorney and see if something can be done before you make a serious mistake in taking a loan out with one these companies.