Around the country, courts are overworked and under-resourced. The result of this situation is that, for many injured people, obtaining compensation for an injury is a years-long process. In the meantime, their ability to earn an income may be compromised at the exact moment that they are being hit with overwhelmingly large medical expenses. For some, the situation can become dire quickly.
What are lawsuit loans, and why are they so dangerous?
One source of funding to which people are increasingly turning in order to bridge this gap is a “lawsuit loan,” or “litigation loan.” Lawsuit loans are marketed to people who have filed lawsuits as an easy way to get money right away that they won’t have to pay back until after they settle or win their lawsuit. The concept sounds fair, but the practice has become extremely predatory towards people who are particularly vulnerable. As this New York Times article on the settlement advance loan industry found, “the rates charged by lawsuit lenders often exceed 100 percent a year.” And as noted above, a lawsuit can take years to resolve. It is not uncommon for people who take these loans to end up owing many times what they originally borrowed by the time their lawsuits end.
Lawsuit Loans and Arbitration Clauses
Meanwhile, a borrower’s options for disputing the final bill are limited. Their lender will have a lien against any settlement or judgment that they receive, meaning that their attorney is forbidden from distributing money to them until the lender has gotten what it claims to be owed first. And most lawsuit loan contracts contain arbitration clauses, requiring the borrower to take any dispute with the lender to an arbitrator chosen by the lender and located in a state that may be hundreds of miles away from where the borrower lives.
Our firm’s policy is to strongly discourage our clients from taking litigation loans against their cases. In our opinion, these loans should be the last option, and used only for true emergencies. If you are sure that you really are in such a situation, borrowing the smallest amount of money possible to get you through your crisis is probably the best way to proceed. Avoiding lawsuit loans entirely, however, would be better still.