The following piece is a contribution by Charles W. Price, CEO of Capital Now Funding, LLC.
The following scenario was once all too common – plaintiffs injured in an accident, waiting impatiently for a complex lawsuit to settle. With the clock ticking and the plaintiff often unable to work, there was little they could do except wait for the phone to ring while medical and other bills kept piling up. Meanwhile, their attorneys must candidly tell them that it will be weeks to months or years before they might receive their settlement money.
Faced with this situation, it was not at all surprising that clients grew increasingly frustrated, gradually giving way to worry, fear and anxiety. And dealing with this level of stress, plaintiffs were capable of placing unneeded pressure on their attorneys to settle before the legal process had fully played out. Attorneys, who naturally want to get the best possible settlement for their clients, were often faced with having to settle prematurely even though they knew that a much better resolution could soon be reached.
Fortunately, a better solution has emerged in recent years that meets the needs of all parties – Consumer Legal Funding. Consumer Legal Funding is often mislabeled and referred to as a pre-settlement loan or a loan against a lawsuit, but it is not technically a loan. Consumer Legal Funding is legal funding that is advanced from a portion of the consumer’s future settlement proceeds. As defined by Eric Schuller with the Alliance for Responsible Consumer Legal Funding, providing a client with consumer legal funding is merely the purchase of an asset – a portion of the consumer’s future settlement proceeds. In essence, plaintiffs are borrowing from their own future settlement funds.
How Do All Parties Benefit?
The real story of consumer legal funding is best viewed in light of the benefits it provides. For the plaintiffs, the benefits include:
- Immediate, much-needed financial assistance to pay medical, housing and living expenses while their legal claim is in process
- Zero to no risk to the consumer, since consumer legal funding is non-recourse (which means that if the plaintiff loses the case, they do not have to pay the funding company back)
- Better relationships with their attorneys, as attorneys generally play a positive role in approving consumer legal funding
- Avoids the need to turn to other, riskier forms of borrowing, which may result in unnecessary debt
- Plaintiffs are in a much better position to receive the best possible legal settlement
For attorneys representing the plaintiffs, the benefits include:
- Reduced pressure to settle a case too soon and accept a settlement that is less than deserved
- Adequate time to get the best possible outcome for clients
- Immediate relief for plaintiff clients struggling with bill payments when they may be unable to work due to accident injuries
- Better relationships with their clients, who need the legal funding as well as the added time for the attorney to properly settle their case
- Improved communications with their clients during the course of the case, as clients who are under less financial pressure will make for a better settlement outcome
- More favorable attorney reviews and increased referrals from happier clients
Understanding The Basics of Consumer Legal Funding
Once you know how the consumer legal funding process works, it’s easy to see what a valuable solution it is for both plaintiffs and attorneys.
Pre-settlement legal funding is a great description of this funding, because the funding company actually provides funds to a plaintiff prior to the legal settlement of their case. The pre-settlement funds are usually taken from the portion of the total funds that will be dispersed at the time the case is settled. Pre-settlement funds are intended to help a plaintiff cover medical and living expenses until the case settles and settlement funds are received.
But it all begins with the attorneys.
Why Law Firms Should Be Involved In The Process
It is essential for the law firm to approve the funding amount given to the plaintiff, as the attorney must confirm that the case is legitimate and has a strong likelihood of being settled favorably. This approval by the attorney is the signal for the funding company that the plaintiff’s case is deserving of legal funding. Pre-settlement funds do not have to be repaid if the plaintiff were to lose the case. Most often, when the plaintiff wins or favorably settles their case, the attorney will repay the pre-settlement amount to the funding company out of the settlement funds at the time the case is settled.
Clearly, providing plaintiffs with the ability to receive financial assistance while their legal claim is in process is a benefit when they have nowhere else to turn and no other assets of significance to leverage for capital.
As The Consumer Legal Funding Industry Has Evolved, It Has Greatly Improved
In the past, some attorneys may have been hesitant to recommend pre-settlement funding for their clients because they may have been concerned over the perception of getting involved in the process, or worried about it from an ethics compliance standpoint. However, over recent years, bar associations and state licensing agencies have upheld, and now agree, that pre-settlement legal funding is a highly beneficial product.
Additionally, in the past, when there were not a lot of options for pre-settlement legal funding companies, clients may have been charged unnecessarily high fees and interest on funds with an indefinite payback period. As a result, if the case went on longer than expected, the client could be left with a payoff that was more than their settlement.
This just isn’t the case any longer. As the industry has matured and evolved, products and options have improved. States have implemented laws regulating the amount of fees that can be charged by pre-settlement funding companies and have required increased disclosure and transparency.
Additionally, the fees being charged have become more competitive, and companies like Capital Now Funding have joined the industry who are dedicated to providing fully transparent payoffs that are fixed for the life of the case with zero interest.
What is most essential in order to benefit the consumer is that law firms have access to legal funding companies they trust and can recommend to their clients. It is important that the attorney helps their client properly evaluate the funding company. Always look for a legal funding company with positive reviews, and one that is forthcoming about its fee structure.
Everyone Wins
As an attorney or law firm, you’re only going to see the benefits of pre-settlement funding if you choose the right consumer legal funding provider. Different providers have different terms and conditions, different fees and interest rates, and different levels of service and communication. Make sure you choose a good fit for you and your clients’ needs.
About the Author
Charles W. Price is Chief Executive Officer of Capital Now Funding, LLC, a nationwide provider of pre-settlement funding for personal injury cases. Capital Now Funding provides industry leading Fixed Fee funding with zero interest, which protects clients and preserves their ultimate settlement amount. For more information, you can contact Charles at cwprice@capitalnowfunding.com.
