Facts Attorneys Need to Know About Lawsuit Funding

Itโ€™s not uncommon for a client to ask for an advance on their case. But as a personal injury attorney, you want to provide your clients with the best possible advice. Predatory lending has been prevalent in the legal industry, while the regulatory environment is relatively weak.

Attorney-in-suit-lawsuit-funding

Many states, including California, lack oversight of pre-settlement funding, but here are some facts about lawsuit funding that can help you best serve your clients:

A Broker May Disguise Themselves as a Funding Company

Brokers are qualified to provide legal funding. But falsely representing themselves as a funding company is not okay. The broker will pass the high cost of their services to your clients, which can include the loan origination fee and 10-20% commission.

Compound Monthly Interest

Borrowing fees can go above 3.5% interest per month, which can add up to 60% interest on top of the initial advance. Plus, there are borrowing fees. At 3.5% per month of compounded interest, a 24-month case (from when the funding agreement is signed), will add up to 150% in interest on top of whatโ€™s owed.

High Application Fees

To apply for funding, many companies charge $400 or more to apply. This is quite high for a client who is already in financial distress. Interest may be charged on the application fee as well. At FCA Legal Funding, there are no upfront payments and you pay nothing out of pocket.

In some instances, a company not only charges a high application fee, but also the same fees even for smaller advances.

Fee Structures Depend on the Funding Company

Each company has its own fee structure. Popular ones include a fixed payout every six months, or a compounded monthly interest. The fairness of each depends on the percentage rate set by the company.

Beware of Over-Funding

If an advance exceeds 10% of a conservative estimate for a case settlement, it is too much. Over-funding a case can lead to your client getting close to nothing once a settlement is reached. A cash advance should only be enough to get a plaintiff through the lawsuit.

Payoff Tables Arenโ€™t Always Disclosed

Funding agreements often require payments at 6-, 12-, or 18-months or other specific timeframes. The payoff table should be clearly defined in the agreement. But at FCA Legal Funding, weโ€™re paid back only if the case wins and out of the settlement proceeds; nothing is taken out of the clientโ€™s pocket. Always make sure the client knows what, if anything, they will need to pay back.

Funding Company โ€œBโ€ Often Buys Out Company โ€œAโ€

If your client applies for funding again, with a second company, it will almost always buy out the remaining interest of the first company. โ€œPaying offโ€ an initial funder is a common practice. The second firm then owns the lien and often refinances the advance with a higher rate.

Regulations Are Always Changing

There is little regulation over lawsuit funding in many states. In others, legislators have recently upped their game on funding companies. Check any funding agreement against the latest regulatory guidelines to protect your clientโ€™s interests.

Fast and Easy Cash Advances with FCA Legal Funding

At FCA Legal Funding, we offer a simple, clear-cut process for obtaining pre- and post-settlement funding, refinancing, and settlement acceleration. If youโ€™ve been in an accident that was not your fault and have hired a personal injury attorney, you can apply for a lawsuit cash advance. Apply now online and receive up to $100,000 in 24 hours.

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