One industry which has enjoyed an uptick in recent years is that of lenders who finance injury lawsuits. These lenders provide the up-front cash some injury victims need to pursue their case in court. In exchange, they receive a sizable payback later. Some see these lenders as necessary helpers of everyday people as they take on well-funded opponents. Others view them as predators preying upon desperate victims. The Tennessee Legislature in now joining the debate, considering a bill that would regulate the industry and restrict the amount of interest these companies can charge.
We do not advise or encourage clients to use lawsuit financing, as the interest rates are almost always excessive. In almost every case, a client can find another source of funds — family, friends, etc. to help them get through while awaiting a recovery. And debt collectors who are seeking collection of unpaid medical bills will usually suspend their activities if they learn there is a lawsuit from which they might eventually get paid. However, there are some cases in which it might be unavoidable as there is simply no other source of funds to provide for the costs of daily living. In such a case, a lawsuit loan might provide a temporary short term solution.
Lawsuit financing typically operates in the following manner: a lawsuit lender provides an agreed-upon sum of money to an accident victim who is suing those responsible. If the victim succeeds in court, then the lender gets a set percentage of the victim’s settlement or judgment award. The victims usually incurred their injuries in auto accident, workplace accident, slip-and-fall or product liability cases. In successful cases, the total recovery for the lenders often translates to an extremely high rate of interest. Some lenders also charge substantial fees for their services.
Jack Johnson, a state Senator from Franklin, proposed SB 1360, which would install several new protective restrictions on these lenders, including a mandatory five-day period in which a borrower could cancel his/her contract at no cost. The law, if enacted, would also limit lawsuit loans to a maximum three-year period and 25 percent annual interest. “It is absolutely the wild, wild west in the state of Tennessee. There is no oversight, there is no regulation, there is no cap and there is no absolutely no limit on what a lawsuit lender or lawsuit funder can charge,” Johnson told tnreport.com.