Last week we discussed the growing phenomenon of lawsuit lenders and their potentially harmful effects on unaware personal injury plaintiffs who find themselves owing lenders a significant part of their eventual settlement check. Because lenders designate themselves as investors or financers, they remain out of the realm of state or federal regulation of lenders, which is how they are able to charge exorbitantly high interest rates (up to 100 percent) and withhold information from plaintiffs.
To avoid being subject to additional regulations, lenders such as Oasis Legal Finance, LawCash and Cambridge Management Group are beginning to volunteer to be regulated – but on their own terms. Most lender-proposed regulations include rules on licensing and disclosure requirements, but forbid any inclusion of price caps and similar end-result limitations. Three states have passed such regulations, and several more are considering them.
At the same time, court rulings may reduce or even remove the need for any regulations. In several states, judges have ruled that personal injury plaintiffs did not need to repay lawsuit loans because the risks allegedly undertaken by lenders did not justify the ultimate costs. According to Dimitri Michiev of lawsuit lender Alliance Claim Funding, such rulings have given lenders additional reasons to be selective when granting loans. “Everything that might have to go before a judge, you stay away from because you don’t want the judge to be in the position of saying ‘I don’t want that level of payment. I think it’s unreasonable,'” he said. “We don’t want judges to shine a light on us.”
It is undisputed that lawsuit lenders do help people in need, but plaintiffs need to be cautious when signing up for a loan that could ultimately cost them a huge chunk of their settlement. “My own personal view of these groups is that I discourage clients from using them. I tell them, go borrow from anybody you can before you have to use them,” said Nebraska Senator Steve Lathrop, who sponsored a lawsuit lender bill in his state. “But the reality is, sometimes there’s no other place to turn.”
If you or a family member is considering a lawsuit loan, please contact Breslin & Breslin for more information and a free consultation.
Source: Herald-Tribune, “Lawsuit Loans Add New Risk for the Injured”, Binyamin Appelbaum, 17 January 2011