The Dark Side of Legal Funding Regulations: How it Can Affect Plaintiffs

Reading Time: 5 minutes
The Dark Side of Regulations: How it Can Affect Plaintiffs Seeking Legal Funding

Are you a personal injury victim with an immediate need for cash? Struggling to make ends meet while waiting for your case to settle? Legal funding might be a great temporary solution for you. This type of funding allows plaintiffs in active lawsuits to get cash now instead of waiting months or sometimes even years before their settlement is paid out.

Unfortunately, regulating the legal funding rates can backfire on plaintiffs who are involved in litigation with large insurance companies. In states where these rates are tightly regulated, similar to bank loans, lenders may be hesitant to offer non-recourse financing for future settlements due to the hard restrictions imposed by the jurisdiction.

This lack of access to funds could potentially leave you without the necessary financial support you might need, ultimately making it more difficult to pursue a favorable outcome in your legal proceedings.

Read on as we explore this issue and explain why regulating lawsuit funding rates isn’t always in your best interests.

Why do state governments regulate the interest rate of lawsuit funding as a bank loan?

As consumer demand for legal funding (also known as litigation funding or lawsuit financing) continues to increase, state governments are responding by regulating the interest rate for these services and making them comparable to those of bank loans.

While this is intended to protect consumers from exploitative practices and provide a secure and transparent lending model, imposing regulations on interest rates can have a detrimental effect on those seeking additional financial support.

It’s essential that we understand the consequences of these regulations before they’re implemented, as it could result in a tremendous decrease in justice and resources for people with legitimate claims struggling through complicated legal battles.

How can this type of regulation hurt a plaintiff seeking legal funding?

If you’re a plaintiff seeking legal funding, the regulation of interest rates, similar to what banks offer, can be a major impediment. When the interest rate is regulated, most legal funding companies will stop providing services in those states due to decreased profits, making it difficult for you to access cash and continue with your litigation.

Without access to consumer legal financing, you could be at a disadvantage and discouraged from pursuing your case. It can also lead you to pressure your lawyer to settle your case for less than its real value, even if you have a reasonable chance of getting a successful outcome.

Additionally, your lawyer can have difficulty gathering evidence during the legal process to win the best settlement for you and ultimately settle the case quickly, for less.

What is legal funding and why should plaintiffs be aware of it?

Legal funding can an incredible amount of financial support for plaintiffs dealing with the lengthy and expensive process of personal injury litigation. Through this form of non-recourse financing, lawsuit funding companies pay plaintiffs upfront who are litigating their cases in exchange for repayment plus interest when the case settles.

Unlike bank loans (which are regulated and require payment under all circumstances), settlement funding providers do not expect repayment if the case is lost. There are also no credit or income checks, as what a bank would require. This means that the lender carries all the risk in investing in your case.

Nonetheless, this safety net isn’t always reliable for everyone since state regulations can significantly lower the interest rates that funding companies are able to charge. Regulating the interest rates to what banks offer ultimately results in fewer lawsuit financing companies operating in certain states, much higher funding amount requirements, and no money available to those in need. 

No matter what state you live in, it’s important that you understand these stipulations so you can budget accordingly and find the help you need before your respective case concludes.

What are the alternatives to lawsuit financing when legal funding companies stop funding in jurisdictions with regulated rates?

If you’re in an unfortunate financial situation and don’t have the support of lawsuit funding, there are other alternatives to legal finance that may work for you.

You could consider diversifying your finances by taking out a loan at a bank or credit union, getting a cash advance loan from a designated financial institution, or even borrowing money from friends and family.

Whichever option is best, always read the terms of repayment of a bank loan and ask any questions to make sure that the loan will not force you into an unaffordable repayment plan.

How do you choose the best legal funding provider for your needs?

Choosing the best legal funding provider is key to a successful non-recourse funding offer. The benefit of this type of transaction is that it also provides medical funding, which works as healthcare when surgery is needed. As noted above, it helps pay any important expense for you during your lawsuit until your claim’s resolution.

However, it can be difficult to find the best funding provider since, in some states, governing regulators have put restraints on companies’ interest rate charges. To make sure your choice is the best one for your needs and for your case, research all available lawsuit funding companies, compare quotes and ask questions about how they structure their loans.

Moreover, look into any policies or restrictions their services may come with in order to protect yourself from any financial risk that comes with working with a litigation funding provider.

Ultimately, you want to work with a trustworthy and experienced provider who caps on loan rates. Never sign an agreement with a lawsuit funding company that does not offer caps.

How capped rates protect you

Capped rates are beneficial because they limit the amount of interest that can be charged. This means you don’t have to worry about continually increasing fees and instead know that the amount of money you owe will remain constant throughout the remainder of your loan term.

Furthermore, this structure allows you to understand how much you’ll pay exactly when your case finally wins. They also protect borrowers from predatory lenders who might try to charge exorbitant interest rates or fees that never end.

The takeaway

State governments aim to regulate the litigation funding interest rate in order to protect plaintiffs from overly high-interest charges. This can, unfortunately, come with consequences if states regulate settlement funding rates similar to bank loan rates as it benefits insurance companies and hurts plaintiffs with legitimate claims.

As a result of these limits, lawsuit funding companies can’t receive enough of a return to continue operating in those states due to the high risks in the investment of lawsuits. Consequently, these regulatory framework leaves plaintiffs without any other financial options but to accept the first lowball settlement offer from the insurance. Then again, benefiting the insurance.

As a plaintiff, you should become more knowledgeable of your options when it comes to settlement funding, including researching the reputable providers. Legal funding companies can help you get through your case financially while you wait for a fair settlement or verdict.

Funding your case with Baker Street Funding, for instance, can offer you several advantages. Firstly, we provide capped rates that stop the lawsuit loan charges after two or three years of the loan. This way, you pay the lowest rate possible after your case settles. Our simple interest-rate loans never grow, which helps you understand that your rate will stay the same throughout the life of your advance.

Baker Street Funding is a reputable funding firm with a long track record of success in providing ethical lawsuit loans. Our lawsuit funding team provides you with personalized assistance and support throughout the entire loan process.

With all these benefits, there is no doubt why plaintiffs choose Baker Street Funding for their lawsuit financing needs. Apply for cash today.

No settlement victory? No payment.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

See some of our settlement funding products

Learn more about pre-settlement funding

Select a legal funding service to get started. 

Attorney Requests

Lawsuit Loans

Litigation Funding

Personal Injury Loans

Settled Case Loans

Surgery Funding

Or just call us at 888.711.3599 to apply.