Top 5 Myths and Truths About Legal Funding
Legal funding represents a $3 billion industry, as of 2016, according to The New Yorker. Lenders are increasingly willing to back cases with a high potential for a monetary award, including those involving personal injury, finance class-action, and more. The number of firms using litigation financing is growing. Yet, many myths remain strong, such as:
1. It Is Illegal?
Staunch critics probably started this myth, but the legality of this practice is not a factor at all. It’s totally legal. Tens of thousands of firms seek funding monthly. Some states regulate funding for legal firms more than others or have case precedents that cause state governments to look at it with more scrutiny. However, the fact is, legal funding is legal and ethical. Fair practices are overseen by the American Legal Finance Association (ALFA).
2. There Is No Regulation
The ALFA is just one association that oversees the practice. Some say funding is inherently unfair to plaintiffs. Strict guidelines forbid funding from giving one party an edge over another, and any type of abuse would violate key principles. In fact, it’s a boon for those living paycheck-to-paycheck and must navigate the legal process. Rather than exploiting vulnerability, legal funding is a safety net, providing financial support as a case is ongoing.
The industry is tightly regulated, with the ALFA requiring members to provide full disclosure to clients, submit written reviews of attorney agreements, and adhere to many other guidelines and conditions.
3. You Are Getting a Loan
It may look like a loan up front, but the funds given must only be repaid if the lawsuit is settled or the plaintiff wins. Otherwise, if the lawsuit fails, there’s no obligation to pay back the lender. An applicant receives a cash advance, which isn’t paid until there is a settlement that can be months or years following receipt. Other options were more popular in the past. Plaintiffs have used personal loans and credit cards that left them in debt regardless of the outcome of their lawsuit, with no benefit to their financial situation.
4. Legal Funding Firms Interfere with Cases
Lenders are never involved in litigation. The lawyer and plaintiff are free to create their own plans and make their own decisions. Funding only removes the financial advantage of a defendant, who may be wealthy or a corporate entity with significant financial reserves. Lenders never put pressure on anyone to settle a case. The only involvement is when the plaintiff wins, enabling the funding company to claim part of the winnings.
5. Funding Is Really Hard to Obtain
Someone unfamiliar with the process may think it’s long and difficult. Legal funding doesn’t require an application fee, credit history, or employment check. So long as there is a strong case, a funding provider doesn’t make things hard for an applicant.
Apply for Funding with FCA
Financial barriers often prevent plaintiffs from getting the most out of a lawsuit. Legal funding serves as a buffer, helping both clients and attorneys who work towards fair settlements. For more information on pre-settlement funding options in California, visit Fund Capital America online or call 310-424-5176.