The lawsuit funding industry is a relatively new and largely unregulated space, especially at the federal level. While some states have enacted consumer protection laws for pre-settlement funding, many plaintiffs are still left to act as their own watchdogs. And as we’ve said before (and will keep saying): not all legal funding companies are created equal.
In a legal battle, the last thing you need is a funder who makes your situation worse. Unfortunately, some companies prey on financially vulnerable plaintiffs by slipping predatory terms into contracts or encouraging secrecy between you and your lawyer. If you’re not careful, that quick cash advance could snowball into an astronomical repayment amount years down the line.
Here are the biggest red flags to watch out for—and how Legal-Bay stands apart from the rest.
Compounding Pricing with No Clear Payoff Timeline
Some lawsuit funding companies use compounding interest models, but fail to tell you how much you’ll actually owe over time. A $5,000 advance might seem helpful today until you realize you could owe double or even triple that amount in just a few years. These contracts often don’t spell things out clearly. Instead, they use vague phrasing or confusing legalese.
Ask yourself: Can this company show me—clearly and in writing—what I’ll owe after one, two, or three years? If the answer is no, walk away.
Shady Clauses Hidden in the Fine Print
Too many plaintiffs are rushed through the paperwork only to discover later that they’ve agreed to exorbitant fees and outrageous payback terms. Some contracts even include clauses that allow the funder to pull more from your settlement than what seems fair or reasonable.
Discouraging You from Consulting Your Attorney
This is a major red flag. Any funding company that tells you not to include your attorney is not looking out for your best interests. Period. A reputable funder will insist on attorney cooperation, not avoid it.
Unclear or Missing Details About Rates or Terms
From repayment terms to cap limits, every detail of your funding contract should be clearly explained in plain language. If a company can’t—or won’t—give you straight answers about your responsibilities, consider that a warning sign. Unclear contracts can leave you exposed to late fees, high interest rates, or even expect you to repay the funds if your case isn’t successful.
Why Legal-Bay Is Different
At Legal-Bay, we’ve built our reputation on clarity, integrity, and fairness. We believe plaintiffs have enough to deal with and shouldn’t have to worry about surprise fees or shady contracts.
Here’s what sets us apart:
No compounding interest. We use simple pricing structures with no hidden traps that spike your repayment years later.
If you or your attorney is looking to get out of a badly priced deal, Legal Bay can refinance a poorly structured contract received from another funder from compounded interest to our flat pricing model.
Attorney cooperation is not only recommended, but required. We work closely with your legal team to ensure your funding works with your case strategy.
Full disclosure. We make sure you and your attorney understand every term of the contract before anything is signed.
Transparent terms and fees. You’ll always know the exact amount you will be expected to pay back, and when. Remember that if you lose your case, you’ll owe Legal Bay nothing.
Final Thoughts
Legal funding should offer peace of mind, not added risk. Unfortunately, it’s up to you to do the homework and protect yourself. When in doubt: read carefully, consult your attorney, and trust your instincts. If something doesn’t feel right, it probably isn’t.
And if you’re looking for a pre-settlement funding partner that puts the plaintiff first, Legal-Bay is here to help. Reach out to Legal-Bay and click below to speak to someone on our trained and knowledgeable staff who will be happy to answer any questions you may have.
