When you are injured and can’t work and don’t have any income, life gets ugly fast. You can’t pay bills, so bill collectors hound you. You have to say “no” to all those little extras for the kids. You might even end up losing your home to the bank in a foreclosure action.
And when you have a pending lawsuit against the negligent person or company that injured you and caused all these losses, and your New York personal injury lawyer says you should eventually get a nice settlement or money judgment, you want to reach out into the future and grab some of that money now, to pull yourself back up above water.
So when a lawsuit lending company offers you a loan that you only have to pay back when and if your New York personal injury lawsuit settles or you get a monetary judgment, it seems like a life-line.
But things aren’t always what they seem.
I have blogged about lawsuit lending before. There, I said, and I repeat, that I don’t recommend to my personal injury clients that they use lawsuit lenders unless they have exhausted all other means of getting loans, including from family and friends, and they absolutely can’t get by without the cash.
Apparently, many people agree with me. Here’s a new on-line article explaining how lawsuit lenders can rake desperate injured plaintiffs over the coals. In one of the cases the article discusses, the injured plaintiff borrowed $9,150 from a lawsuit lender, promising to repay the loan from the proceeds of his eventual settlement or judgment against the folks whose negligence injured him. But he should have read the fine print and done some math. It turns out that, because of the high interest rate, by the time he got paid on his personal injury case a year and a half later, he owed the lender $23,588. And his settlement was for only $27,000. He got peanuts from the case.
How could that be? How could they charge him so much interest? Can banks and lenders get away with that? Isn’t that called “usury” and isn’t it illegal?
If this had been a normal bank-to-person loan, it would be illegal. Interest rates and lending practices are strictly regulated to protect the consumer. But lending to injured plaintiffs who are willing to use their lawsuit as collateral is a fairly new practice, and our old laws don’t cover it. In fact, the lenders make damn sure that what they are doing does not technically qualify as a “lending” at all so that they are not regulated by the rules prohibiting exorbitant loans with interest rates. The way they do this is by providing that the plaintiff need not repay the money if they lose the case. (There is no way most injured plaintiffs could repay the loan anyway if they lose the case, so this is not much of a concession). Since the money need not be repaid unless you win a settlement or monetary judgment, lawsuit lenders claim what they are doing is not “lending” at all, but rather “investing” in the case, at a substantial risk. This, they say, justifies the exorbitant “rates of return” (it’s not “interest”, they say, since it is not a “loan” but rather an “investment”).
But in reality, lawsuit lenders screen very carefully the cases they will lend on, and usually shell out the bucks on the slam dunks, or near slam dunks, and take little risk at all in exchange for those high interest rates … er I mean “rates of return”.
Some States, including New York, are starting to catch on — and have begun to regulate lawsuit lending. But it’s still pretty much a free-for-all out there. That means, buyer beware! Until the law catches up with lawsuit lending practices, my advice to clients is: (1) read the fine print; (2) calculate very carefully just how much money you will end up paying the lawsuit lender overtime; (3) ask yourself, “is it really worth it” and “can’t I get by without this for now”?
Email me at: firstname.lastname@example.org I’d love to hear from you!
Michael G. Bersani, Esq.
Central NY Personal Injury Lawyer Michaels & Smolak, P.C.