“Lawsuit Lenders” establish relationships with trial lawyers at Florida convention

Inside Subprime: June 28, 2018

By Lindsay Frankel

In an effort to build relationships with trial lawyers, a group of so-called “lawsuit lenders” recently attended the Florida Justice Association’s annual convention. These lenders, also known as “litigation funders,” offer cash advances to be paid back by plaintiffs in the event of a settlement. If the attorney loses the lawsuit, the borrower is not required to pay back the advance. As such, the industry doesn’t consider these cash advances to be loans, and they are also not subject to the same usury laws as payday loans in Florida. As the industry grows, so does controversy surrounding the lack of interest rate and fee caps on lawsuit loans.

Critics of the industry claim that lawsuit lenders take advantage of cash-strapped borrowers in times of emergency. Plaintiffs involved in personal injury lawsuits frequently need financial assistance before their cases are resolved to cover medical bills or surgical funding. These borrowers face exorbitant interest and fees when the time comes to pay back the advance.

“Lenders eat into consumers’ litigation recoveries by charging exorbitant interest rates, claiming that because they have only a contingent interest in repayment and will receive nothing if the case is lost, they are exempt from state laws capping allowable interest for consumer loans,” said attorney Mary Terzino.

Last year, Ronald Taylor brought a class action lawsuit against one such lender, Certified Legal Funding. According to Taylor, CLF charged a $345 origination fee and a $600 processing fee every six months in addition to 51 percent interest. “The interest rates contracted for by CLF are in excess of those permitted to be charged pursuant to the CFA and the Usury Act,” his complaint states.

The Georgia Supreme Court is hearing the appeal of a decision that these cash advances are not loans and therefore not subject to the same laws. But previous cases have determined the opposite – years ago, both the Colorado Attorney General’s Office and a South Carolina agency established that the products were loans.

Lenders in the industry insist that their products are different from traditional loans and that they have the client’s best interest in mind. Bernard Lebs, regional sales manager of LawCash, said “These are non-recourse advances. They are not a loan. There are no payments being made on a monthly basis. The advances that we give are usually paid back to us at settlement. There are some cases that settle at what we don’t think it should have settled for. We may have to take a small reduction to help the plaintiff out as well. We do what we have to do to make the client happy and make it right.”

Still, desperate borrowers should explore other options before entering into an agreement with a legal finance company. Eileen Lagunas of lending company Oasis Financial admitted that the company’s products should be a last resort for borrowers. She said their interest rates are exorbitantly high.

“If you’re coming to us, it’s the worst-case scenario. I don’t pitch it otherwise or else I don’t feel right.”

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