How to Avoid Predatory Lawsuit Loans
Lawsuit loans are a valuable tool for plaintiffs who need immediate cash while waiting for their lawsuits to resolve. Lawsuit loans are a financial lifeline for those facing lengthy legal battles. Critics however point to predatory lawsuit loans as a legitimate concern. They say that predatory lawsuit loan terms trap unsuspecting plaintiffs with confusing terms, and vague repayment communication. In this post, we explore predatory lawsuit loans in more detail, discussing what they are, how to spot them and what can be done to avoid the trap.
What Are Predatory Lawsuit Loans?
Lawsuit loans are defined as specialty financial transactions where plaintiffs sell a portion of their future recovery in return for an upfront amount of cash. Lawsuit loans are largely unregulated in many states. This leaves lawsuit lenders wide latitude in how much they charge for this service. Market forces generally do a good job in establishing competitive pricing since lenders compete for fundable lawsuits. However, because companies can charge whatever a plaintiff is willing to accept, some plaintiffs pay more than they otherwise should, if they are unaware of other viable alternatives.
Predatory lawsuit loans refer to high-cost, and often misleading funding terms that prey on vulnerable individuals. While traditional lawsuit loans best practices typically offer some degree of fairness, not all funding companies adhere to those policies. Instead, predatory loans come with exorbitant fees, sky-high interest rates, and unclear terms that can result in plaintiffs owing much more than necessary.
These types of loans are typically offered to plaintiffs who have filed personal injury, employment discrimination, or other types of lawsuits, and they are often marketed as “no-risk” or “non-recourse” loans. This means that if the plaintiff loses their case, they are not required to repay the loan. However, the high cost and the lack of clear terms can make it very difficult for plaintiffs to make informed decisions in predatory situations.
Qualities of Predatory Lawsuit Loans
The basic premise of a lawsuit loan is that the lender advances money to the plaintiff in exchange for a portion of the potential settlement or judgment. While this may sound reasonable, predatory lawsuit loans often operate under the guise of “fast cash” without properly disclosing the costs involved. They generally involve the following:
- High Fees and Interest Rates: Predatory lenders often charge excessive interest rates, which can result in the plaintiff owing far more than they borrowed. These interest rates are frequently structured as daily or monthly compounded rates, which means the debt grows rapidly over time.
- Unclear or Confusing Terms: Many predatory lenders hide fees or fail to explain the full cost of the transaction. Plaintiffs may be unaware of the true amount they will owe if they settle their lawsuit.
- Large Percentage of the Settlement: In many cases, the lender will take a substantial portion of the plaintiff’s settlement or award. This could be as high as 30%-50% or more, leaving the plaintiff with far less than expected.
- Pressure Tactics: Some predatory lenders employ aggressive marketing strategies, pressuring plaintiffs to accept loan offers quickly without fully understanding the terms.
- No Clear Timeline: Predatory lawsuit loans often lack transparency regarding the loan’s repayment structure or timeline. This makes it difficult for plaintiffs to know what portion of their settlement will be used to repay the lawsuit loan.
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Red Flags of Predatory Lawsuit Loans
Recognizing predatory lawsuit loans can be challenging, but there are a few things to look for. Here are some signs that you may be dealing with an exploitative predatory lawsuit loan:
Extremely High Fees
Most lawsuit loan criticism involves high repayment costs. Look for loans that charge excessive fees or compound interest rates. Some lawsuit loan fees are common and represent the cost of providing lawsuit loans to customers. Others can be simply designed to gouge a financially vulnerable plaintiff. If the fees seem unusually high compared to industry standards, you may be dealing with a predatory lender.
Vague Terms
If the lender does not provide clear, written terms or is unwilling to explain all aspects of the loan agreement, this is a significant red flag. Terms should be clear and easily understood. Most reputable lawsuit funders place the pricing schedule on the front page of the contract. If you are unsure as to what any terms mean and the company will not explain them, perhaps it is time to look elsewhere for funding.
Pressure to Sign Quickly
If a lender pressures you to accept an offer immediately without giving you the time or resources to understand the terms, they may be simply trying to get the deal done regardless of the plaintiff’s needs. Legitimate businesses rarely feel the need to use these tactics. They fund cases every day – it’s the clients which normally need to get the deals done quickly.
High Repayment Percentage
Be wary of offers that ask for a large percentage of your settlement, particularly if the loan repayment could leave you with little to nothing after the case is resolved. The majority of plaintiff funding applies a percentage rate and amount of time between funding and payment to the lawsuit loan contract amount. Plaintiffs can easily shop for lawsuit loans online and compare pricing.
How to Avoid Predatory Lawsuit Loans
When considering lawsuit loans, plaintiffs would do well to take steps to protect themselves from predatory lending practices. Here are some tips to help you make an informed decision:
- Do Research: Take the time to research different lawsuit loan providers. Look for lawsuit loan companies that have good reviews, are transparent with their fees and terms, and are willing to answer your questions in detail.
- Understand the Terms: Before agreeing to any loan, carefully read the terms and conditions. Pay attention to the interest rates, fees, and repayment structure. Ask the lender to explain anything you don’t understand, and don’t sign anything until you are clear about what you’re agreeing to.
- Seek Professional Advice: Consult with a financial advisor or attorney before taking out a lawsuit loan. They can help you assess whether borrowing money is in your best interest and may help you find more reasonable alternatives.
- Consider Alternative Financing Options: In some cases, it may be better to explore other financing options, such as personal loans, credit lines, or borrowing from family or friends. While these options may not be ideal, they can offer more favorable terms than lawsuit loans.
- Work with Reputable Companies: Only work with well-established legal funding companies (Fair Rate Funding – Since 2007). A reputable company will have clear terms, transparent fees, and a strong track record of customer satisfaction.
- Check for State Regulations: Some states have laws regulating settlement funding, including caps on interest rates and fees. Be sure to research your state’s laws to ensure that the lender is in compliance with these regulations.
Conclusion
Lawsuit loans are a viable solution for plaintiffs’ immediate financial problems. Getting saddled with a predatory lawsuit loan can be a disaster. Understanding the potential pitfalls and taking steps to protect yourself, you can avoid falling into the trap of predatory lending. Always read the fine print, ask questions, and consult with professionals before making any decisions about lawsuit funding. Remember, while a lawsuit loan can provide temporary relief, it’s important to ensure that you’re not sacrificing your entire recovery in the process.
If you find yourself in need of financial assistance during a lawsuit, give us a call to discuss your options. You will reach a live lawsuit loan representative who will answer all your questions. With proper guidance, plaintiffs can get the help they need while avoiding predatory practices.
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