The Cost of Lawsuit Cash Advances
For a lot of plaintiffs who have been injured and have lawsuits pending, a resolution to the case couldn’t come fast enough. A lot of plaintiffs have suffered economically from their injuries and need cash to deal with everyday expenses or medical treatments while they wait, with hope, for their case to resolve. For these plaintiffs, the idea of getting an advance, or loan, on future potential settlement proceeds may seem like an appealing option.
A number of legal cash advance companies target plaintiffs in litigations that 1) are likely to settle or that 2) have settled, however due to the nature of the case, settlement proceeds take some time to be disbursed. Because of the criteria used by these companies to determine which cases they will provide an advance, or loan, on the risks to these companies of getting paid back tends to be low. As a result, these cash advances, or loans, are marketed to plaintiffs as non-recourse loans which means the plaintiffs do not pay back any money that they do not receive from that case. In other words, the plaintiffs are only bound to pay these companies back from the monies they receive, if any, from the case they sought the advance on. With this in mind, it is pretty hard for plaintiffs to see the downside of accepting such advances.
However, outside of the money and the non- recourse nature of these loans, these companies typically do not explain the rest of the terms. Plaintiffs usually do not fully understand the high cost of these loans until their cases resolve and they are given their current payoff amount from the company. It is not unusual for pay off amounts to be double the amount of the underlying advance amount within a matter of months. These inflated interest rates have not gone unnoticed by authorities in some states.
Just yesterday, the Consumer Financial Protection Bureau and New York Attorney General Eric Schneiderman filed a complaint against the New Jersey based settlement advance firm, RD Legal Funding LLC. In short, RD Legal provided 9/11 first responders and retired NFL players advances on their settlement proceeds and by the time the settlements were disbursed, the responders and players were on the hook for millions of dollars due to RD Legal. Among other things, the complaint alleges that 1) RD Legal made misrepresentations to the first responders and NFL players that prevented them from understanding the terms and the costs of the loans and 2) that the payments made to these individuals ended up being loans with interest rates as high as 250% which is significantly above New York’s usury cap.
What was most egregious about the loans RD Legal advanced was the fact that the 9/11 responders and NFL Players had actually reached settlements in their cases. It was simply a matter of time before they would receive their settlement payments, however RD Legal continued to charge outrageous interest rates on the advances when there was literally no risk to them in advancing the money.
While it is up to each individual to decide whether they need to obtain such an advance from one of these companies, there are some things to consider before deciding:
1. Do you really need the money or do you just want it because it is available to you?
2. If your situation is one in which you need money, are there any alternative means for you to obtain money such as a loan from friends or family member?
3. Try to determine by talking to your attorney how long it would take before any settlement proceeds may come your way. In most cases this is hard to determine but if you can at least get some sort of minimum amount of time your case may take to reach a resolution then you can ask the cash advance company what the pay off would be at that time. Once you get the pay off amount you can decide whether the amount is something you are willing to, or can afford to, part with from your settlement.
If after careful consideration, an advance on your legal case is something you must move forward with, make sure to understand the terms of what you are actually committing yourself to and what you are signing.