Exploring the Top 3 Settlement Loan Myths
Settlement loan myths pervade the legal landscape perhaps mostly because settlement loans have many critics. Most oppose lawsuit funding to promote their own agendas such as tort reform, a reduction in insurance claims or restricted access to the judicial system. Because of this, it is necessary to dispel some common settlement loan myths.
Settlement Loan Myth #1 – Settlement Loans are for the Full Value of the Case
One common settlement loan myth is the idea that plaintiffs are giving up their entire lawsuit. Certain parties promote this myth by arguing that settlement loans, also known as lawsuit loans or legal funding, hinder settlement negotiations because the repayment of the loan would equal all or most of a plaintiff’s ultimate proceeds.
In practice however, this is simply not true. Settlement loans, are designed to advance only a small portion of the potential settlement – up to 12% of the subjective value of the case (as determined by conservative lawsuit funding underwriters).
Since all parties prefer settlement, limiting the amount of funding should leave ample room for settlement negotiations.
The design of settlement loans is not to eat up most of the recovery. This is simply a settlement loan myth. The real purpose of settlement loans is to give plaintiffs an opportunity to endure the litigation process without having to settle for a “lowball” settlement offer.
Plaintiffs must either settle the case or go to trial. Attorneys would much rather settle then to try a case if the offer is fair. This is true because anything can happen when a case is put before a judge and jury. If a plaintiff does not settle, counsel must either try the case or remove himself from the attorney client relationship. Neither of these is a desirable outcome for settlement loan companies.
Forcing a client to trial is the last thing an attorney or settlement loan company desires. Even if the plaintiff prevails, a series of motions and appeals would also likely result, and this would increase the risk as well.
It is a settlement loan myth these deals are designed to hinder settlement. Nor are they designed to capture the maximum amount of revenue from each case.
Of course, some settlement loans, such as older advances, can have repayment terms that may cause difficulty in procuring a settlement. This usually occurs when cases encounter unforeseen events or when the case takes longer than anticipated to resolve.
Then there are cases where the repayment amount exceeds the settlement offer. These instances are the exception – not the rule.
When it does occur, another settlement loan myth would have the funding company play dig in its heels and demand as much as possible. Yet, settlement loan funders are professional investors. And professional investors are more interested in the safety of their capital than a return on it. The settlement loans myth that advances are made for full settlement value is simply incorrect.
Lawsuit Loan Myth #2 – Lawsuit Settlement Funding Companies Can Dictate How the Case is Handled
Another common settlement loans myth is the idea lawsuit funding companies get involved with the litigation. Images of lawsuit loan professionals contacting plaintiff attorneys to discuss strategy is pure fantasy. So too are funders directly contacting insurance adjusters to get updates on the status of a claim.
Some common types of settlement loans are car accident loans, slip and fall loans, medical malpractice loans, etc. Although Fair Rate Funding cannot speak for all lawsuit loan companies, we can attest that we have never contacted an attorney to discuss strategy. We have never even heard of this ever occurring. Further, we cannot understand why an insurer would ever take a call from a lawsuit funding company.
Of course, the very people spreading this anti lawsuit funding propaganda are the insurers themselves. They are the parties most negatively affected by leveling the playing field between plaintiffs and financially strong insurers.
If the potential for inappropriate contact between insurers and funders is really a massive problem, then insurers can simply ignore the calls. Insurance companies like to play victim, as they blame plaintiffs and/or their attorneys for insurance fraud. The real victims are the plaintiffs who patiently wait for compensation while the claim/lawsuit drags on.
Settlement Loan Myth #3 – Settlement Loans Encourage Litigation
This settlement loans myth doesn’t make sense on its face. As previously stated, settlement loans attempt to level the playing field between individuals (most often) and financially strong insurance companies which are defending the cases.
Blanket statements such as these are rarely persuasive as they don’t explain how lawsuit settlement loans encourage litigation. We suppose some might insist that if attorneys do not have to risk their own money litigating a case, they might be more inclined to file a lawsuit. In other words, because attorneys can finance the costs, they would be risking less and more willing to file. Seems logical, except for the fact that this is also a settlement loan myth. In fact, most lawsuit funding companies refuse to advance money to attorneys to pay for experts, deposition transcripts, etc.
In truth, lawsuit funding was and is meant to pay for living and medical expenses. If an attorney does not believe in the case enough to stake his/her own money and time on the file, you will not find many settlement loan companies willing to fund. Funding companies want personal injury attorneys to have skin in the game. This shows the company that:
- The attorney thinks he/she has a solid chance of winning, and
- He/she is committed to the case.
Further, the idea more frivolous cases are now possible flies in the face of reason. It would be extremely difficult to find any decent personal injury attorney who is willing to waste his time on a losing case. Personal injury lawyers only have a finite amount of time to work. Personal injury attorneys are selective since a losing case does not bring revenue. This selective nature of an attorney’s practice actually serves as a screening method to settlement loan companies. Having an attorney willing to invest his/her time and capital in a case is a prerequisite to personal injury loans.
Because of this, settlement loans do not result in more lawsuits. This is simply another settlement loan myth. The safeguards are already in place to prevent frivolous cases from being brought.
Legal Loan Takeaways
Many settlement loan myths portray settlement funding as an evil enterprise designed to take advantage of people and whose presence negatively affects the legal world. The settlement funding business is like any other business – filling a need that needs filling. If customers didn’t see the value, they would not enter into the transactions. Settlement loan myths try to smear a legitimate industry serving a legitimate need.
Thank you for your interest in settlement loan myths and the lawsuit funding business.