Why I “Hate” Lawsuit Loans
June 4, 2013
You’re injured in some kind of accident and you’re sitting at home. Money is getting tight and a commercial comes on TV pitching that they will lend you money if you’ve been injured in an accident and are waiting for a lawsuit settlement. You pick up the phone, tell them about your case, and they offer to loan you money. GOOD IDEA or BAD IDEA?
It is a bad idea and let me tell you a true story to explain why. Elwin Francis had a personal injury case and he decided to borrow cash from these companies (lawsuit loans or funding companies). Francis’ case settled for $150,000. After paying off the funding companies, which were owed approximately, $96,000, Francis received $111. That is right – a hundred bucks.
So, Francis was unhappy with outcome and tried to sue his lawyers for malpractice. The court would have none of that nonsense. In dismissing the suit, the court said:
this Court finds that the plaintiff entered into each and every loan agreement involved in this case of his own free will and accord. The contracts between the plaintiff and these funding companies are quite detailed and when the plaintiff entered into these contracts, he was required to initial each and every page to demonstrate that he had read the page and understood the provisions contained therein. Not only do the contracts clearly state the amount that the plaintiff borrowed in each instance, they also clearly and unambiguously state how much the plaintiff will be required to pay back to the funding company upon resolution of his underlying personal injury case.
Based upon the documentary evidence, which clearly demonstrates that the plaintiff was fully aware of his actions when he entered into the various loan agreements that resulted in large liens being placed against the proceeds of his underlying personal injury case.
I do not know how much Francis borrowed in this matter, but in my experience people who borrow from these funding companies have to pay back 2.5 to 5 times the amount of the original loan. The amount increases with time. So a $2,500 loan can become $10,000 if for some reason the case takes 18 to 24 months to resolve.
No matter how many times clients are told this is a bad idea, some will still go ahead and take the loan truly not understanding the consequences. There is no doubt that in Francis’ case, if he would have been able to stick it out, he would have received almost $100,000 in his pocket.
If you’re sitting at home and see one of these commercials, I would recommend that you change the channel.
What do you think about these lawsuit loans?