When someone is involved in a personal injury claim, the court proceedings or settlement process can take a long time. Even if the case looks like a sure win for the claimant, waiting for the results can be very costly.
When someone has been injured by medical malpractice, the extent of their injuries usually mean that they are unable to work in order to support themselves. Therefore, waiting for a settlement can mean going into serious debt.
Unfortunately, many desperate lawsuit claimants seek help from companies who provide lawsuit loans. These loan services have been around for about 10 years, and they are largely unregulated in most states. This means that lenders do not need to disclose the terms of the loan and they can get away with charging more than 100 percent interest.
A Georgia man borrowed less than $10,000 while waiting for a settlement in a class-action lawsuit against a drug company. He was desperate for money because he was facing eviction from his home. 18 months later he owed the lender $23,588 which cost him almost his whole first settlement payment of $27,000.
The man's story is common for many who borrow from lawsuit lenders. The companies defend their high interest rates by noting that only borrowers who win their case are obligated to repay the loans. Therefore, the high interest rates are necessary to cover the costs of lost money.
However, investigators found that these lending companies carefully screen their applicants' cases to determine which are the most likely to win or settle. They refuse loans to about 70 percent of applicants. Critics of these lenders say they prey on the desperate and ignorant.
Ohio outlawed the practice of lawsuit lending in 2003. Due to excessive lobbying by supporters of the lawsuit lenders, the decision was reversed in 2008 and it is now legal again. Some Ohio laws have been passed which help regulate the industry by requiring licenses and better lender disclosure. However, there are still no caps on interest rates.
Consumer groups and the majority of lawyers strongly advise against the use of lawsuit loans. Claimants in need of money are warned to exhaust every possible option before taking one of these costly and risky loans.
Source: The New York Times online, "Lawsuit Loans Add New Risk for the Injured," Binyamin Appelbaum, 16 January 2011