Understanding the Funder

I read an article today regarding the lawsuit funding industry. The article discusses the lawsuit funding industry as a whole. The article listed several points on the negatives of loaning money against lawsuits which I would like to point out.

The author stated that companies are charging upwards of over 100% a year for their money. LawLeaf is one of the most experienced in the marketplace and we can honestly say we have never been part of an underwriting process in which a loan costs upwards of 100% interest per year on any personal injury case. In fact, we would never refer our clients to an underwriter that charged these types of rates. We understand some companies charge higher rates for their money, but we’ve never come across a competitor that charges over 100%. To make assumptions or generalizations on all lawsuit funding companies is just wrong.

The second item discussed in the article pertains to the insurance company. While the author recognizes insurance companies intentionally extend the life of a case in hopes for a smaller payout, he also made a statement about the insurance companies finding out about the loan. What he doesn’t realize is that lawsuit loans should always be 100% confidential. The only way the insurance company could find out about the loan is if the attorney or the client told the insurer.

The third item discussed was the underwriting process. The author pointed out that a lender will first review the case before lending money. No matter if you are borrowing from a bank or through a legal funding lender, the lender will take the necessary steps in determining if the loan is secured or not. I don’t know one company that would loan money just because a client said they would be sure to pay it back. The author assumed that litigation financing companies should be willing to fund “all” cases regardless of the strength of the case. I would like to point out that even the best underwriters in the industry still lose a percentage of their cases they approve.  In fact, it wouldn’t be uncommon for a company to lose upwards of 15%-20% of their investments on a yearly basis.

LawLeaf believes while the rates and the processes are unlike traditional lending instruments; surely no bank would be willing to lend money against a lawsuit. The fact is that lawsuit funding is risky. Over the last several years, the industry has seen multiple companies and funds go out of business or stop funding cases. This is because some companies invest in the wrong cases and run out of money to lend.

Generalizing an industry without doing your due diligence is plain wrong. LawLeaf and most other companies within the litigation financing industry will be the first to say that the rates are generally higher than traditional bank loans etc. But the risk at which the money is lent far exceeds a traditional bank note. When risk is high, unfortunately the rates must also be higher.  If each company new for certain that their investment would pay off, certainly the rates would be lower.

I would ask the author to investigate credit card fees as well. If a person has B&C credit or no credit at all, I’m certain the credit card company wouldn’t give them the best rate. This is because there is a higher risk for the company.

Lastly, this tool should only be used by those people that have no other financial means to pay their bills. If a person can get by without having to secure a lawsuit loan, they shouldn’t consider this option. If you are searching for additional information on lawsuit funding, contact LawLeaf.

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