2011-04-15 / Columnists

Notes On Consumer Affairs

Lawsuit Lending
Commentary By Assemblywoman Audrey Pheffer


AUDREY PHEFFER AUDREY PHEFFER Recovering from an injury caused by an accident or negligence can be a slow and painful process.

To make matters worse, some consumers that file lawsuits to recoup damages sustained due to lost productivity or an inability to work can have difficulty paying their bills in the time between the accident and the conclusion of their case.

An increasing number of businesses now specialize in providing cash advances to plaintiffs facing financial hardship that are to be repaid, together with fees, following a favorable settlement agreement or the award of monetary damages.

If the plaintiff loses the lawsuit, he or she is not required to repay the advance.

Those considering a lawsuit advance contract should be aware that the fees charged by these businesses are often extremely high, with some fees equivalent to an annual percentage rate (APR) of over 100 percent. If you or a loved one is currently involved in a lawsuit, consider the following information before agreeing to a lawsuit advance contract.

Lawsuit advance funding businesses often solicit clients through advertisements that promise quick, easy and risk-free money.

Many of these businesses focus their efforts on plaintiffs involved in class action and personal-injury lawsuits with the potential for significant cash settlements.

Some businesses fail to adequately disclose the true costs of these contacts, and many consumers have been shocked to find that the majority of their settlement or damages award must be paid to the lawsuit advance business.

Since the contracts offered by lawsuit advance businesses are not technically loans or financing, but cash advances that do not need to be repaid if the consumer loses the case, the product is not subject to fair lending laws or interest rate caps.

Those considering such contracts should be aware of this fact and scrutinize any offer closely, making sure to read and understand all the terms and conditions.

It is also important to be aware that, depending on the terms of repayment and the length of the case, a relatively small cash advance provided at the beginning of a lawsuit can end up costing the purchaser a significant portion of any settlement or damages award.

Experts recommend that plaintiffs having financial difficulties explore all other sources of funding before turning to a lawsuit advance business.

By cutting expenses, negotiating with creditors, or borrowing from family or friends, it may be possible to make ends meet while waiting for an expected settlement or favorable decision.

Those considering a cash advance should consult their lawyer or a financial counselor before signing on the dotted line.

To arrange to speak with a financial counselor, you may contact the New York City Office of Financial Empowerment, which administers a free financial counseling service, by visiting: http://www.nyc.gov/html/ ofe/html/home/home.shtml or calling 311 and asking to be connected to the Office of Financial Empowerment.

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