I have been practicing law and handling personal injury claims in Seattle for 26 years. Recently, I have seen a huge upswing in advertising by predatory pre-litigation loan companies offering high-interest rate loans to injured people who are desperate for immediate funds to pay mounting medical bills, to replace damaged vehicles, or to live off of while they are unable to work due to their injuries.
I have also seen the financial disaster that can result when a client signs up for one of these loans. Let me describe a recent experience that illustrates what can happen when a client takes a pre-litigation loan.
I had a client who borrowed $6,000 in a pre-litigation loan, prior to my becoming his attorney. By the time I got his case, he owed that predatory lender $54,000. The result to my client was that, even though I was able to get that loan balance reduced, most of his net settlement went to the predatory lender to pay off the balance of that loan, instead of to my client. He had signed a written contract which was legally enforceable.”
I was left with an unhappy client in considerable financial difficulty. This is never the desired outcome for any case.
Since a $10,000 pre-litigation loan can grow to a $30,000, $40,000 or even higher debt, the loan can create a huge financial burden that eats up any settlement money his clients obtain, money that should go towards long-term healing and financial recovery.
A little research into the advertising messages of these loan companies offers insight into why these loans sound so attractive to someone in the middle of a legal claim. One company describes its services as “the safe, easy alternative to the lawsuit loan: cash advances for injured people!” Another company says that “you can get the cash you need today and the breathing room you need to wait for a fair, and often higher settlement.” They suggest that the loan will allow the borrower to feel less pressure to settle a case for less than its full value.
Another claim from these companies is that the loan will not have to be repaid if the client does not get a settlement or verdict on his claim, a client who “loses” his or her case.
But this part of the offer is misleading. Since these loan companies investigate the potential value of each case prior to offering a loan on it, they only give loans to clients with cases that have a high chance of settling, although the amount of the settlement or verdict cannot always be accurately predicted in advance. This is one of the major dangers of the pre-litigation loan, since the client is forced to guess what the eventual settlement or verdict amount might be and gamble a high-interest loan against it.
These loans are extremely expensive, and the loan companies prey on the desperation of injured clients who feel they have no other options left. The interest rates of the loans are not clearly defined on the company websites, and potential borrowers are urged to call immediately, to be hit with a high-pressure sales pitch that offers an immediate solution to the borrower’s financial worries. It turns out that the interest rates are exorbitant, and they can create huge problems down the road.
But there are other options available, and EVERY option should be considered prior to taking a pre-litigation loan. For example, many doctors will accept a “Letter of Protection” from an attorney, which essentially states that the attorney will guarantee to pay the doctor out of the proceeds of the client’s net settlement, in exchange for the doctor providing treatment and waiting to be paid until the case has been concluded. Some doctors will treat “on a lien” which means they file a lien to protect their fees, and once it is filed they will agree to treat and then be paid at the conclusion of the case.
Other options include borrowing money from a bank or credit union, or even taking a line of credit on your home to pay medical treatment bills. These loans do charge interest of course, but at reasonable rates. Some people are able to borrow money from family or friends, too, and pay them interest for that privilege.
In addition, sometimes an attorney can help find insurance coverage to pay for some or all of treatment costs. In some cases, more than one insurance policy is in effect and provides coverage. If all else fails, there may be temporary public assistance available to pay for needed treatment. It is true that clients have to re-pay public assistance when they settle their claims. But again, that is reasonable and much cheaper than paying the outrageous interest of a pre-litigation loan.