Lawsuit Loans: Taking Advantage of the Injured?

March 11, 2011

Lawsuit Loans: Taking Advantage of the Injured?

A catastrophic injury impacts a person and his or her family well beyond the bumps, bruises and broken bones. Often, medical bills and wages lost during the recovery period can cause just as hardship as the physical pain. Unfortunately, the rent or mortgage payments, and utility and grocery bills are not put on hold while you wait to recover compensation through settlement or trial.

These financial realities have given birth to a relatively new and controversial industry: lawsuit loans. A handful of companies engaged in this business lend money to injured and financially strapped litigants while their cases progress through the legal system. Lenders only receive repayment plus interest if the borrower recovers compensation through settlement or trial -- nothing is paid back if the borrower fails to receive a settlement or loses at trial.

For many, these loans appear to be a win-win: they receive the financial help they need and are only responsible for repayment if they recover compensation. However, many are finding out that if something seems too good to be true, it usually is.

While many lenders spell out the terms of the loan, many borrowers feel as though they have been taken advantage of during a vulnerable time. According to the New York Times, often the terms of the agreement require the borrower to pay an interest rate of over 100 percent.

In almost all states, lawsuit loans do not fall under lending laws -- only a couple of states have even attempted to regulate this industry. The companies that make these loans contend that they do fall under lending laws as they are not expecting repayment if the borrower fails to recover compensation through their lawsuit, according to the New York Times. Companies in the industry see themselves as investors in the lawsuit, taking a financial gamble, which entitles them to charge higher rates as they are taking a bigger financial risk than traditional lenders.

Many disagree with these lawsuit lenders, though. Many of these specialized lending companies employ personal injury attorneys who evaluate the potential success of the pending lawsuits, allowing the companies to invest in cases they feel have the best chance of success -- therefore limiting the actual risk of investment and creating a windfall of a return through high interest rates.

The companies insist that they are providing a necessary service for people experiencing financial hardships by allowing the injured to pay their bills. But these loans can be seen as taking advantage of individuals in very difficult circumstances.

Article provided by Bohrer Law Firm, LLC
Visit us at www.bohrerlaw.com