After a personal injury, people often have trouble meeting their needs. With mounting expenses such as medical bills for injury treatments, utility bills, groceries, rent, mortgage payments, and other day-to-day expenses, life doesn’t get better. While attorneys play a crucial role in helping clients seek compensation for their injuries, they are ethically prohibited from offering any financial assistance to those they represent in most states.
Pre-settlement funding, also known as a lawsuit loan, has been a fast-growing industry in the US since the 1990s and is now an important part of the legal system. It empowers underprivileged victims to receive much-needed support during a pending lawsuit. It can be beneficial for plaintiffs as they can avoid being taken advantage of by insurers when settlements are delayed, and offers are too low.
Key takeaways:
- In the U.S. legal system, pre-settlement legal funding provides financial assistance to vulnerable accident victims during the course of litigation.
- Ancient Greece and Rome introduced the concept of litigation funding, which has evolved over time to become an essential tool for achieving justice.
- Pre-settlement funding is non-recourse legal funding. That means the lender provides you an advance based on the merits and value of your case, not your finances.
- Pre-settlement funding can be expensive due to the high risk involved in lawsuits and because repayment is only required if the case is won or settled.
- In most states, legal funding is not regulated. Nevertheless, few states require lenders to charge rates like banks, which restricts access to funds. Legal reform may be needed.
How did pre-settlement legal funding originate?
As society has evolved, settlement funding, or litigation financing, has emerged as an essential tool that facilitates access to justice and provides fairness in legal proceedings. One compelling aspect of the history of legal funding is its origins. It’s been suggested that the practice began in the civilizations of ancient Greece and Rome. Romans could help others with money, which made it possible for people without money to fight for their rights.
As time progressed, the influence of litigation funding found its way into Medieval English. This concept became the “champerty and maintenance” of medieval times. Wealthy nobles funded lawsuits for others. So a person who doesn’t have a legal claim (the “maintainer”) finances the legal action of another person (the “tenant”) in exchange for a portion of their property.
However, back then, suing was seen as aggressive and rude. Christianity condemned legal disputes as a reflection of discord and an action counter to the teachings of unity, forgiveness, and compassion.
As societies evolved and progressed over the centuries, so too did the perception of pre-settlement funding and its significance in upholding justice. Its purpose today is to provide financial assistance to those who could otherwise not afford it. Legal funding helps ensure that plaintiffs have access to a just outcome, regardless of their financial situation.
What is pre-settlement funding today?
Pre-settlement funding is a type of financing that’s available to plaintiffs who are involved in a lawsuit and are waiting for a settlement or award. It provides them with a cash advance on the potential lawsuit settlement or verdict they may receive in the future. This allows you to cover living and medical expenses while your lawsuit is pending. Lawsuit funding can help maximize a settlement. It avoids settling too quickly for an amount that may be lower than what you deserve.
For instance, consider the case of a single mother from New York who was involved in a car accident. While waiting for her personal injury lawsuit to settle, she struggled to pay her medical bills and support her children. Pre-settlement legal funding provided her with the financial relief she needed to cover her expenses without having to settle her case prematurely for a lower amount.
With lawsuit funding, you get access to emergency cash quickly and without the hassle of applying for a traditional loan. The money is typically available within 24-48 hours of applying. These advances are also “non-recourse”. You are only required to repay the funds if and when you win or settle your case.
How does pre-settlement funding work?
Unlike any type of traditional financing, all pre-settlement funding loans are non-recourse transactions. The lender will decide to provide you with an advance based on the merits of your case and not your financial standing. With a lawsuit loan, you don’t need to prove your credit or employment history.
Some of the cases that qualify for funding are:
- Automobile cases
- Slip and Falls
- Premises liability
- Catastrophic injuries
- Medical Malpractice
- Wrongful death
- Employment related cases
- Product liability cases
- Qui tam
- Securities and shareholder
Qualification varies between lenders, but it generally requires:
- Having an attorney with a contingency fee arrangement;
- Your attorney has to be willing to provide the requested documents and information about your case;
- A viable claim worth over $50,000;
- A defendant who can pay damages like one who has insurance coverage;
- Be 18 years of age or older.
How to get pre-settlement legal funding.
When you apply for pre-settlement legal funding, you need to provide basic information about your case. Afterward, the lender will get in touch with your attorney to evaluate your legal claim and its value. Once the lender has established your eligibility, you’ll receive a proposal indicating the amount you have been approved for.
If you accept the loan offer, you will receive a non-recourse lawsuit funding agreement that you and your lawyer need to sign. The funding contract contains your lawsuit loan amount plus the interest rate. When the agreement is complete, the lawsuit cash advance is available within 24 hours. Then, once you receive your settlement, your attorney can repay the lender with a portion of the settlement funds.
Fees and interest rates.
Pre-settlement legal funding companies impose higher rates compared to those from traditional loans. That’s because all lawsuits entail high risks, and there are no guarantees of victory in litigation. Additionally, many lenders also charge additional fees. As such, before taking out a lawsuit loan, you should be aware of all applicable costs and factor them into your decision.
While you aren’t obligated to repay a settlement advance unless you win your case, the fees and interest rates can be quite high. Consider weighing the pros and cons before committing to a settlement advance.
Fees
A lawsuit loan fee is a charge that lenders require you to pay after you receive compensation from your claim. It’s a one-time fee calculated as a percentage of the total amount you borrow, varying from 5% to 15% with most lenders.
Interest rates
The interest rate costs in pre-settlement funding also vary from lender to lender. Generally, you’d get a charge anywhere between 2.95% and 4.5% per month, either compounding or simple.
In contrast, companies like Baker Street Funding charge non-compounding rates on all lawsuit loans. They start at 2.95% to 3.4% per month, with added protection, with all charges ending in the third year of the agreement.
Important factors about pre-settlement legal funding regulations and the need for reform.
Pre-settlement legal funding, due to its “non-recourse” nature, typically falls outside the scope of federal laws. This type of funding isn’t subject to state regulations in most jurisdictions because it is not a loan. Unlike traditional loan institutions, there is no repayment if the case is lost.
However, few states have enforced usury laws on pre-settlement funding. That means that funding companies must charge rates like banks. The problem with making non-recourse funding rates like a bank is that the lender shoulders the high risk of not getting repaid.
While the original purpose of these rules is to protect consumers, it instead has the opposite effect. When a state regulation mandates lenders to charge between 18% and 24% APR, they don’t provide their services in those states. As a result, these restrictive usury laws governing legal funding pose significant challenges for injured victims and ultimately create an unequal and often unfair playing field.
Insurance companies can hire the best attorneys. They know victims are unable to meet their basic needs and pressure them to settle for less. Unfortunately, these victims are the only ones who lose with those regulations. And insurance companies are the only ones who win.
Take the example of Luis, a construction worker from Kansas, where pre-settlement funding companies are required to charge rates like banks. Luis had a back injury that required surgery. After that, he couldn’t work and had many medical bills. While dealing with settlement delays, he reached out to several legal companies for help. But due to state regulations on lawsuit loans, they were unable to assist him. This left Luis in a difficult financial situation, pressuring him to accept a lower settlement from his employer’s insurance company just to keep his head above water.
This example is why it’s important to have access to legal funding. It gives victims the ability to enforce their rights. They won’t have to accept a lowball settlement from the insurance due to financial pressure.
Some may argue that these laws are needed to stop predatory lawsuit lenders from taking advantage of plaintiffs, but the reality is that these laws are hurting plaintiffs. If we want justice, those laws need reform. Only then will the legal system be able to deliver justice.
The takeaway.
Since ancient civilizations, pre-settlement legal funding has evolved into an integral part of the U.S. legal system. It empowers struggling victims to meet their living and medical expenses without compromising on what they rightfully deserve. By doing so, it makes possible the process of obtaining justice for those who cannot otherwise afford to do so.
As the industry expands, it is important to establish regulations that strike a balance between consumer protection and making legal funding more accessible.
If you’re in need of pre-settlement legal funding, always choose a reputable and trustworthy company. While there are numerous lenders to choose from, not all are created equal. Some will charge you an arm and a leg for their services, while others will offer reasonable rates.
Companies like Baker Street Funding offer non-compounding rates and ensure that charges end in the third year of the loan. We provide a more affordable and ethical solution for those in need.
If you need financial assistance after an accident and have exhausted all other possible sources of funding, a settlement loan from Baker Street Funding can be of great help. Get pre-settlement funding by applying today.
