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. 

Suggested Resources

Research

All Results for Lawsuit Lending

  1. Five Men Charged with Fraud After Running Five-Year, $32 Million Slip-and-Fall Scheme

    May 14, 2018 | News

    Federal prosecutors have charged five men with "a widespread mail and wire fraud scheme" for running a slip-and-fall lawsuit scheme that cost insurers and property owners $32 million over five years, The New York Times reports.... Read More

  2. Senate Bill Aims to Disclose Litigation Financing in Class Action and Multidistrict Litigation

    May 11, 2018 | News

    U.S. Senate Judiciary Committee Chairman Chuck Grassley, Senator John Cornyn, and Senator Thom Tillis introduced a bill that would require third party litigation funding and lawsuit lending arrangements be disclosed, Legal Newsline reports.... Read More

  3. In the News Today - May 10, 2018

    May 10, 2018 | News

    U.S. Senators Introduce Landmark TPLF bill; Georgia Supreme Court to Decide the Future of Lawsuit Lending... Read More

  4. Landmark Bill Would Pull Back Curtain on Secretive Lawsuit Funding Deals

    May 10, 2018 | Blogs

    Today, U.S. Senate Judiciary Committee Chairman Chuck Grassley (R-IA), along with Senators John Cornyn (R-TX) and Thom Tillis (R-NC), introduced the Litigation Funding Transparency Act (LFTA), a landmark bill to help bring the multi-billion dollar litigation financing industry out of the shadows.... Read More

  5. In the News Today - April 23, 2018

    April 23, 2018 | News

    Denver Post Editorial Board: Boulder Lawsuit "Dangerously Miss[es] the Mark;" Lawsuit Lenders Demand $2.1 Million as Repayment for $21,300 in Loans... Read More

  6. "A Truly Disgusting Legal-lending Racket"

    April 17, 2018 | News

    The New York Post Editorial Board said a recent report is "yet another grotesque abuse by the legal-lending industry."... Read More

  7. NY Times: Lawyers, Lawsuit Lenders Violated Privacy, Pressured Plaintiffs to Have Surgery

    April 16, 2018 | News

    A New York Times investigation into the business model of lawsuit lending found that an "assembly-line-like system" run by lawyers and lenders coerced women to have surgery to make them better plaintiffs in mass tort litigation.... Read More

  8. N.Y. State Legislator: Must "Crack Down on the Lawsuit-Loan Wild West"

    April 09, 2018 | News

    A New York State senator said in a New York Post op-ed that it's time for the state to "crack down on the lawsuit-loan Wild West."... Read More

  9. In the News Today - March 22, 2018

    March 22, 2018 | News

    Third Circuit Rules Litigation Funder Entitled to Share of Settlement... Read More

  10. Federal Prosecutors to Probe Lawsuit Lending Industry, NY Times Reports

    March 20, 2018 | News

    A group of five lawyers told the New York Times that federal prosecutors are investigating the "fast-growing" lawsuit lending industry.... Read More