According to Fox Business, plaintiff lawsuit funding started around 1997.[1] Since it is relatively new, it can be hard to determine which lawsuit funding companies are legitimate and which are not.
It’s especially important to make this distinction and catch the red flags early on to make sure that you don’t end up owing your entire settlement and then some. That being said, here are 10 red flags to watch out for when considering a pre settlement loan.
What is a Pre Settlement Loan?
In general, a pre settlement loan involves borrowing money while you are awaiting trial. Normally, the money is spent on piling medical bills and day-to-day bills—such as utilities, rent or your mortgage, etc.
It is not uncommon for personal injury plaintiffs to apply for these types of loans if they are facing extremely tough financial times—such as facing foreclosure and homelessness, with no other financial options in sight.
10 Common Red Flags
Dire circumstances or not, it is important that you know the ins and outs of the cash advance industry so you can make the best decision for you.
Read on to learn what red flags you need to be on the lookout for when considering a lawsuit loan.
#1. You Have to Pay More Than Your Settlement
Given that the lawsuit loan industry is unregulated, not every settlement loan company is the same.
Meaning, some pre settlement loan companies will not charge you more than the settlement you are awarded. Whereas others could end up charging you more, especially if the interest is compounded and your case stretches on.
This is why it is important that you ask (and get in writing) the ins and outs about the loan’s terms and conditions. If the company wavers on this or tries to dismiss your questions, you may want to consider looking elsewhere.
#2. You Have to Pay When You Aren’t Awarded a Settlement
Again, it depends on the company and your contract. Some lawsuit loan companies won’t make this mandatory; others will.
Depending on the person, this may not be a red flag; however, it definitely is important to know this early on. That way, you are aware of the level of risk involved should or shouldn’t you be awarded a settlement.
#3. Hefty Application Fees
Some companies will charge an application fee; similar to the above, others won’t. Charging an application fee could be a sign that the company is in dire need of funds.
Or it could be a scam, where your application is not even looked at—(but your money is). At the same time, the company could be legitimate.
Nonetheless, you’re standing on shaky ground and could benefit from reading the reviews and checking to see if the company is registered with the Better Business Bureau—along with other research.
#4. Extremely High Interest
According to Fox Business, interest rates for some funding companies range between 27%-60% per year, which can be comparable to payday loans.[2]
Similar to Red Flag #1, annual interest rates can exceed as much as over 100%. What this means is that you could stand to lose your settlement award.
To prevent this from happening, it is necessary to shop around for funding companies and ask about their interest rates:
- Is it compounded or simple interest?
- What is the interest rate?
- Are there any other fees—such as an application or finding fee?
#5. Your Attorney Does Not Recommend the Lawsuit Loan Company
Your attorney is a good go-to when you’re looking for a lawsuit funding company. They may have some companies in mind, which is why it doesn’t hurt to ask for their opinion.
What you do want to pay attention to (and steer away from) are the companies they don’t recommend—these are red flag companies. (Remember, your attorney’s job is to represent you and what is in your best interest.)
(Still, at the end of the day, even if your attorney recommends a specific lawsuit loan company, it is your choice whether you want to go through with the application process or not.)
On a similar note…
It is a red flag when lawsuit funding companies don’t recommend or make it mandatory for your attorney to be present.
Overall, your attorney being present helps everyone—lawsuit funding company and you. Your attorney can read the boilerplate and contract, giving you their expertise on the matter.
Likewise, having a lawyer present may help protect a funding company from getting sued or involved in legal ramifications.
So, a company that doesn’t want your attorney present is inexperienced at best, and questionably unethical at worst.
#6. Lawsuit Funding Company Isn’t Registered in Better Business Bureau
The Better Business Bureau (BBB) is a non-profit organization that strives to set business standards, as well as enforce integrity and performance in the marketplace.
That said, pre settlement companies registered in the BBB is a step in the right direction. So, if the company you are searching for doesn’t come up in the BBB registry, this is a red flag.
Sure, the settlement company could just have started up and hasn’t had a chance to register. Then again, new or not, you should still proceed with caution.
#7. The Pre Settlement Loan Company Has Several Negative Reviews
Whether on BBB, Yelp, Facebook, Google, or another review site, a slew of negative reviews is an indicator you need to be weary of the pre settlement loan company you are dealing with.
Yes, chances are, out of the hundreds of reviews on the company, there is bound to be one or two negative reviews. If that’s the case and the negative reviews aren’t deal breakers for you, it may be fine to consider that loan company.
On the other hand, if most of the reviews are negative, you may want to move on to the next pre settlement loan company, as the reviews show that the company has a poor reputation.
#8. There is No Contract
You found a loan company you like, the reviews are positive, yet you notice they beat around the bush when it comes to discussing contracts. You aren’t sure where you stand; you know your application was accepted but what are the next steps?
If there isn’t any talk about a written contract, it’s best to look elsewhere. The last thing you want to do is blindly assume you have a deal when there isn’t one officially written out and signed.
Without a written contract, the pre settlement company doesn’t have any obligations they need to abide by.
This means you could be given a lower settlement loan. And, as far as payback and interest rates go, you could be left in the dark, potentially at the mercy of the pre settlement company.
#9. The Contract is Verbal
Instead of not having or speaking of a contract, you have a verbal agreement with the lawsuit funding company. While this is better than no contract at all, verbal contracts can be harder to enforce, especially since there isn’t any tangible proof showing a contract exists.
While verbal contracts can be just as legal as written contracts in some cases, it still is recommended to draw up a written contract between you, your attorney, and the lawsuit funding company.
That way, should any legal questions come up, you can look at the contract to see what you are and are not obligated to do.
#10. The Contract Details Change
You’ve signed a contract with a lawsuit funding company.Some months have passed and, out of the blue, you receive a call that the company wants you to pay them back as soon as possible. This wasn’t agreed upon in the contract—or was it? Their call alone is grounds to question what’s going on.
At this point, it is recommended to contact your attorney and read over the written contract to determine if the funding company is crossing the line or is in the wrong. Whether this is the case or not, an abrupt call for the money up front may be a questionable sign.
Final Thoughts
If you are in the trenches of a lawsuit with no settlement award in sight and a piling stack of medical bills, you may want to look at all of your financial options.
If family and friends aren’t able to help out financially, you aren’t able to get a traditional loan, have bad credit, and are on the verge of pulling from your home equity and/or 401(k), it may be time to start looking into funding companies.
Remember to keep these red flags in mind when doing so and always, always, always do your research.
What has your experience been like with a funding company? Let us know by commenting in the comment section below!
Summary
- Since lawsuit funding companies aren’t regulated, all are not equal; that said, here are some red flags to keep in mind:
- When you have to pay more than your settlement, something doesn’t add up—this is a huge red flag
- You have to pay back the loan even when you aren’t awarded a settlement
- Hefty application and finding fees could be signs for concern
- Extremely high interest rates are causes for concern
- Your attorney advises you against said lawsuit loan company
- The funding company isn’t registered in the BBB
- There is no talk about the contract, it is verbal, or the contract details have changed all of a sudden
Contact Legal-Bay for more information about a lawsuit loan!
[1]Fox Business: Cash-now Promise of Lawsuit Loans Under Fire
[2] Fox Business: Cash-Now Promise of Lawsuit Loans Under Fire
