Lawsuit Lending

Lawsuit lending is a financial practice that provides “up-front” cash to individual plaintiffs to cover immediate living or medical expenses during litigation. These loans are typically attached to sky-high interest rates, fees, and charges – as much as 200 percent – that can leave borrowers with little to no recovery. In addition, lawsuit lending prolongs litigation and distorts the fundamental nature of the civil justice system.

In lawsuit lending, repayment is contingent on the plaintiff recovering some sort of monetary compensation, either through a settlement or verdict. In fact, the lawsuit lending industry goes to great lengths to tell the public that consumer lawsuit loans are not really loans at all, but are instead “nonrecourse financing.” This rationale is how lawsuit lenders have managed to avoid regulation in many states. read more...

Unfortunately, lawsuit lending is far from harmless. It hurts consumers while undermining the integrity of the justice system.

The practice hurts consumers by eating into their recoveries in litigation. The New York Law Journal reported on the case of a Brooklyn man who borrowed $27,000 from a lawsuit lender for a slip-and-fall lawsuit. His case was settled five years later, but the lender demanded $100,000 – two-thirds of the total settlement and more than three times the amount of the original loan. To add insult to injury, the plaintiff’s lawyers pocketed an additional one-third of the settlement – leaving the plaintiff with just $111 out of a $150,000 settlement. In another case reported by the New York Times, a plaintiff actually lost money. After winning nearly $170,000 at trial, the plaintiff’s lender claimed it was owed $221,000 – an amount 30 percent larger than the total recovery.

Moreover, lawsuit lending distorts the civil justice process by altering a plaintiff’s decision making process. For example, a plaintiff may reject a reasonable settlement offer for the chance of obtaining a higher verdict in court because they will need to pay off a high-interest loan. This choice jeopardizes the chance of any recovery, as litigation could result in a lower than expected verdict or a judgment in favor of the defendant. It also increases costs for defendants, who are forced to endure prolonged and costlier litigation.

Finally, lawsuit lending undermines the integrity of the civil justice system. By inserting a third party into the case, lawsuit lending compromises the interests of litigants – upsetting a primary bedrock of the justice system. It also creates conflicts of interests for plaintiffs’ lawyers, who may develop referral relationships with certain lawsuit lenders and be expected to “steer” clients to those lenders.

Reforms

Lawsuit lending should be regulated like any other consumer financial product. In November 2015, the Colorado State Supreme Court unanimously decided that lawsuit lending is subject to the state's existing consumer lending law. The ruling established an important legal precedent that lawsuit lenders must play by the same rules as other lenders in the state. Several bills have also been introduced in state legislatures to do exactly that. Oklahoma became the first state to pass such legislation in 2013. In 2014 Tennessee passed a law that provides meaningful regulation to lawsuit lending, and in 2015, Arkansas followed suit. Indiana joined the community of states regulating this product under state consumer lending laws in 2016. 

Research

West Virginia's Climb: Lawsuit Climate Progress in the Mountain State and the Path Ahead

January 10, 2018 | West Virginia has begun shedding its reputation for having one of the worst civil justice systems in the nation. The state's lawsuit climate ranked dead last or second to last in surveys of business executives and attorneys conducted eleven times over the past fifteen years--until 2017. This report explores the beginning of the state's encouraging transformation and highlights areas where it may continue this progress.

101 Ways to Improve State Legal Systems: A User's Guide to Promoting Fair and Effective Civil Justice - FIFTH EDITION 2017

September 12, 2017 | A user's guide to state legal reforms, providing policymakers with a compendium of options available to foster a sound legal system and promote state economies. This resource also offers a compilation of recently-enacted legal reforms to show how legislators can move the proposals described in the guide from theory into practice.

All Results for Lawsuit Lending

Lawsuit Lending On Trial in Georgia

February 08, 2018 | News and Blog

Two Georgia cases, one of which is headed to the state's supreme court, could decide the future of the lawsuit lending industry, Legal Newsline reports in Forbes. Read More »

Georgia Supreme Court Will Hear Lawsuit Lending Case

February 07, 2018 | News and Blog

The Georgia Supreme Court will hear a case that could decide whether lawsuit lending arrangements actually qualify as loans under state law and are subject to regulation. Read More »

Wisconsin Governor Calls on State Legislators to Pass Major Legal Reform Bill

January 30, 2018 | News and Blog

Both chambers of the state legislature should heed Gov. Walker's direction and pass a major legal reform legislation as soon as possible. Read More »

In the News Today - January 29, 2018

January 29, 2018 | News and Blog

AbbVie Drug Did Not Cause Man's Blood Clots, Jury Finds; How the Finance Industry Is Trying to Cash In on #MeToo Read More »

In the News Today - January 25, 2018

January 25, 2018 | News and Blog

Judge Expected to Rule Whether Coffee is Subject to California Warning Labels; Lawsuit Asks If Companies Funding Litigation Are Breaking Florida Law Read More »

Lawsuit Lenders To Pay $2.3 Million for "Predatory Interest Rates"

January 23, 2018 | News and Blog

Two lawsuit lending firms have been ordered by Colorado Attorney General Cynthia Coffman to pay more than $2.3 million to settle claims alleging they charged excessive interest rates, reports Legal Newsline. Read More »

In the News Today - January 22, 2018

January 22, 2018 | News and Blog

WSJ Op-ed Challenges N.Y. Mayor on Environmental Lawsuits; Expert Ups Suggested Fee Cap In NFL Concussion Deal Read More »

In the News Today - January 16, 2018

January 16, 2018 | News and Blog

Lawmakers square off over profitable cottage industry; The Latest on Third-Party Litigation Financing Read More »

In the News Today - January 12, 2018

January 12, 2018 | News and Blog

Lawsuit Lenders Hope N.Y. Ignores Pa. Lending Ban in NFL Concussion Case; $8.5 Million Settlement in Google Class Action to be Contested Read More »

WV's "State of the State" on Legal Reform: Improving

January 10, 2018 | News and Blog

Ahead of West Virginia Governor Jim Justice's "State of the State" address on Wednesday night, new research from the U.S. Chamber Institute for Legal Reform (ILR) provides a snapshot of the state's past accomplishments and future opportunities on legal reform. Read More »

  • bulletClick to Narrow Your Results
  • 2017 Legal Reform Summit Recap