Lawsuit loans are alluring for victims of a serious car accident. Getting knocked out of work and a pile of medical bills can set you back. Lawsuit loans provide an immediate solution.
For victims, loan settlements provide immediate cash in advance of a settlement or verdict. The upside is that the loan is, in a sense, risk-free. The money lent is not repaid if the victim does not get a recovery.
Our clients have gotten these loans over the years and we know the ins and outs of how pre-settlement loans work. This page discusses lawsuit loans and highlights some of the issues accident lawyers should consider when a client seeks a loan against the settlement of a personal injury case.
Overview of Lawsuit Loans
The problem with pre-settlement funding in Maryland is the effective interest rate of these loans is often obscene. How do the lawsuit loan companies get around Maryland usury laws that limit the interest rate? Technically, a lawsuit advance is a non-recourse cash advance to the injury victim in exchange for a promise – that is binding on the client and the client’s lawyer – to pay back the money plus interest after a settlement or an award at trial.
“Non-recourse” means that the loan is contingent – like the lawyer’s fees in a typical personal injury case – on a successful outcome of the lawsuit.
This means that, theoretically, the lawsuit funding company is also taking a risk. But these companies don’t make money investing in high-risk cases. These companies loan money in cases where a settlement or a victory at trial is incredibly likely. By and large, these loans go to victims where liability for the injury has already been admitted or the facts are such that an admission of liability is a mere formality.
Pre settlement loans are provided by largely unregulated companies that can take advantage of accident victims. Below, we provide some thoughts on how to avoid getting taken advantage of to the fullest extent possible.
Here is one more question near and dear to our hearts. You might ask why your lawyer can’t advance the funds to you? That would solve everything. But that is illegal in many states, including Maryland.
Issues for Lawyers to Consider for Clients Looking for Lawsuit Loans
Personal injury attorneys generally dislike lawsuit loans. They make settlement more difficult and they interfere with the goal of putting as much money in the client’s pocket as possible.
But, in the real world, some clients are going to have no alternative. If our lawyers are going to help people, we have to live in the real world.
Keep in mind that like any amount owed, these lawsuit loans are negotiable at the time of settlement. Typically, the lawsuit settlement lender is smart enough to cut their already obscene gains by taking a reduction in the amount owed.
With respect to the true cost of the loan – the interest rate and the fees – make sure the client shops the deal. The effective rate of interest on lawsuit loans varies wildly. There are also some decent lawsuit loan companies out there that we have occasionally directed our clients to when necessary.
Also, smart lawyers who are required to acknowledge the lien read every line of the agreement. Typically, the loan document will include some language that requires the lawyer to stipulate that liability is in dispute, largely because of concerns that a state will invalidate the document if liability is established (which a Michigan court once did). Accident lawyers need to make sure they are not misrepresenting the facts of the case. We typically cross out the sections of the agreement that do not apply.
Advice We Give Our Clients
If you are strapped for money and you have a pending lawsuit, you want to explore every possible option other than getting a lawsuit-backed loan. Go to family members, max out your credit cards… do anything and everything you can before applying to one of the lawsuit funding companies. Because even the very best of these companies offer deals that make credit card fees seem generous.
But, ultimately, you are an adult and you have to decide what is best for you. If you have to get one of these awful loans, make sure you fully understand every fee and cost you will incur and shop around to get the very best price.
- In Maryland, the interest rates on small loans are capped at 2.75% per month/33% per year. See Md. Code Com. Law § 12-101 et seq.
- Proposed legislation in Florida in 2021 to better regulate lawsuit loans
- New York Times article that lays out the problem of non-recourse cash advance loans
Sample Demand Letters
- Sample Demand Letter #1 (an example of a demand letter)
- Sample Demand Letter #2 (another sample demand letter)
Values of Specific Injuries
- Overview: How Are Injury Cases Valued?
- How Long Will I Have to Wait for My Case to Settle?
- Foot and Ankle Fracture Settlements and Verdicts in Maryland
- Fracture and Broken Leg Verdicts
- Cancer Misdiagnosis Results
- Rotator Cuff and Shoulder Injuries
- Nursing Home Settlements and Verdicts (verdicts in Maryland, Virginia, and Washington, D.C.)
- Wrongful Death Settlements and Verdicts in Maryland (wrongful death values)
- Herniated Disc Cases
Getting a Lawyer for Your Claim
We handle personal injury vehicle accident, malpracticen and product liability claims. If you or a loved one has suffered a serious injury or death as the result of the negligence of someone else or you are a lawyer looking for co-counsel for your case, call us at 800-553-8082 or get a free Internet consultation.