Fair Pre-Settlement Funding – An Oxymoron or a Viable Alternative?

The following article was contributed by Julia DiCristofaro, program administrator at The Milestone Foundation.

“I have a good client who is in need of pre-settlement funding, which I almost always advise against. But she is desperate, and this case will settle soon. Do you think you can help?”

As program administrator of The Milestone Foundation, the only nonprofit providing pre-settlement funding to plaintiffs in need, I often hear this sentiment. Non-recourse, pre-settlement funding companies market themselves as quick cash options for plaintiffs who are awaiting their settlements.  It’s an easy lure for an individual who has undergone a catastrophic incident, one that has likely left them injured and unable to work, or facing mounting medical bills; someone who knows they will eventually receive a sum of money to live off of, but in the meantime, might not be able to afford groceries or rent.

Pre-settlement funding, also referred to as litigation finance, has grown exponentially in the past decade and is now estimated to be a nine-figure industry. For many plaintiffs, this funding is a necessary lifeline to financially stay afloat as their case resolves. Yet, there are few regulations for this type of funding, often referred to as the “Wild West” of the lending industry. Murky contracts comprised of complex language, confusing terms, hidden fees, and complicated interest calculations are common features of these advances.

When an individual is desperate to make ends meet, terms like “compounding interest,” “quarterly fees,” and “capped at three times the principal” fade into the background, as “cash in less than 24 hours,” “no credit checks,” and “if you don’t win your case, you don’t owe anything” catch their attention and provide a glimmer of hope.

As many attorneys can attest, once a case settles and the payment is due to the lender, this lack of transparency often renders plaintiffs shocked to see that they now owe as much as $30,000 on the $10,000 advance they received. Plaintiffs can feel duped or betrayed, and oftentimes look to their attorneys to solve the problem by negotiating “haircuts” with the funder, or even waiving their own fees.

An attorney practicing in New Mexico shared: “I had a client who recently received a $50,000 settlement. She owes $16,000 on a $5,000 advance she took out, and is panicking at how little money she’s actually going to receive. I think I am going to have to waive my fees on the case just to help her stay afloat.”

It’s no wonder so many attorneys discourage their clients from taking these advances, though for many individuals, these funds are more critical now than ever. Plaintiffs have long been at a disadvantage when pursuing justice against deep-pocketed corporations that can make lowball offers in mediation, or await the time it takes to go in front of a jury.

As with many facets of life, the Covid pandemic has played a role in shaping the civil justice landscape, as social distancing guidelines resulted in overloaded dockets and delayed court dates for civil cases. As a result, the advantage held by insurance companies and other defendants in personal injury cases has increased, as they continue to accept premiums and pay out less in settlements. Meanwhile, as government programs such as stimulus checks and eviction moratoriums expire, inflation continues to skyrocket, and savings dwindle, the majority of Americans are barely making ends meet; at the end of 2022, 64% of the U.S. population was living paycheck to paycheck, an increase from 61% in 2021 according to a recent LendingClub report. Much to the dismay of many experienced attorneys, these contrary factors – lengthened trial timelines and increased financial need – make non-recourse funding a necessary component of the civil litigation landscape.

Given the oftentimes exploitative nature of non-recourse advances, many states have introduced legislation or enacted regulations to rein in the industry. For instance, in Colorado, some courts have voided or re-written individual litigation financing agreements as traditional loans subject to low-interest rate ceilings. While this helps plaintiffs avoid unfair and predatory rates, it also discourages many funders from assuming the risk that is inherent in non-recourse funding, leaving few options for these injured parties, who will then pressure their attorneys to settle their lawsuits – often to the detriment of their awards.

Trade organizations such as The Alliance for Responsible Consumer Legal Funding (ARC) and

American Legal Finance Association (ALFA), often lobby state legislatures to prevent restrictions on the litigation finance industry. They argue that the non-recourse nature of the lending requires their members to assume a high level of risk that justifies their practices, as the plaintiffs are only required to repay these advances using the proceeds from their lawsuit; in the instance of an unfavorable result, the lender does not recoup their advance. ARC states that they support legislation that “enacts robust consumer legal protection for consumer legal funding and maintains consumer access, because good legislation does both.”

Both ARC and ALFA champion industry best practices and sponsor legislation to reflect these practices. ARC’s best practices range from recommending that contracts reflect all costs and fees – showing how much the consumer will owe every six months, and the maximum amount a provider may ever own of a recovery – to prohibiting attorneys from receiving referral fees or commissions from the companies their clients receive their funding from. To date, six states have enacted ARC-backed legislation, while other bills are being reviewed in states like Kansas and Rhode Island.

While the activities undertaken by ARC and ALFA are adding regulatory measures to the industry, some might argue that they are not going as far as necessary to truly benefit plaintiffs who are utilizing this funding. Maximum payments and fees are listed in contracts, but they are generally not easily found on websites, making it difficult for plaintiffs to compare shops, or truly understand what they will owe until they go through the strenuous application and underwriting process. Additionally, these trade organizations do not make recommendations on interest rates or maximum repayment amounts, which enables their members to continue to charge exorbitant rates and fees.

But that’s not to say there are no ethical lenders in the space. Some companies are instituting policies such as capping repayment amounts at two times the principal, offering advances with simple interest that is applied every six months, helping to identify government support, and introducing innovations like debit cards that enable borrowers to pay for basic necessities.

Another viable alternative to unethical lending is The Milestone Foundation, formerly known as the Bairs Foundation, which was created six years ago to provide a plaintiff-focused option in the pre-litigation space. The only nonprofit providing low, simple interest pre-settlement advances, the foundation has helped more than 600 plaintiffs by advancing more than $4.8 million and is looking to expand its reach to serve more clients across the country.

Steven Shapiro, partner at Ogborn Mihm LLP in Colorado, has seen firsthand the benefits, as well as the pitfalls, of pre-settlement funding. “My job as an attorney is to get my clients the award they deserve. If they don’t have the resources to pay their rent or buy their groceries, they are going to feel pressured to settle, and I won’t have the time I need to bring the case to a fair resolution.”

Shapiro has at times seen clients with no alternative other than to take out advances with 30 to 40 percent interest rates; while painful at the time, these clients were able to see their cases through to a reasonable conclusion.

He’s also seen The Milestone Foundation at work. He recounts his client Olga, a Russian-American woman disabled in a car accident, who was in need of funding. He referred her to The Milestone Foundation.

“The foundation was able to provide Olga a reasonable advance at a reasonable rate, that enabled her to afford her living expenses for the duration of the case, which took about two years to settle and resulted in a seven-figure award. The contract was transparent and really the most wonderful thing. I would always opt to refer my clients to The Milestone Foundation rather than other lenders whose practices tend to be much more opaque.”

While pre-settlement funding is often condemned by principled attorneys working to protect the best interests of their clients, ethical lenders like The Milestone Foundation are working to give the industry a new reputation. As the only nonprofit in the industry, The Milestone Foundation protects the interests of plaintiffs over profits, and hopes to inspire other entities to implement a similar approach toward pre-settlement funding.

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Legal-Bay Launches INSTALL Funding: Monthly Financial Relief for Plaintiffs Awaiting Settlement

By Harry Moran |

Legal-Bay, a leading pre-settlement funding company, has introduced a game-changing financial solution for plaintiffs embroiled in active litigation. Their newly launched INSTALL funding contract offers clients the ability to receive structured monthly payments instead of a traditional one-time advance, easing the burden of everyday living expenses during the often lengthy legal process.

This innovative funding option addresses a growing need among plaintiffs who face significant financial strain while their cases are pending. With INSTALL funding, individuals can rely on predictable monthly disbursements designed to cover essential costs such as legal fees, medical bills, and everyday housing expenses, allowing them to focus on their case without the added pressure of missed bills or mounting debt.

Chris Janish, CEO of Legal-Bay, says, "Legal battles can be incredibly stressful, especially when they drag on for months or even years. We created INSTALL funding to provide ongoing financial stability for our customers when they need it the most, when they are stuck at home and can't work, but still need to have their bills paid on the first of the month."

INSTALL funding is one of Legal-Bay's most popular products, because lawyers know their clients cannot fight a case without cash flow coming in each month.

So, if you are a lawyer and have a client—or If you're a plaintiff yourself—in an existing lawsuit who needs an immediate INSTALL funding contract against an anticipated cash settlement award, you can apply HERE or call: 877.571.0405

Unlike standard bank loans which often involve large lump sums and steep repayment terms, INSTALL funding is tailored to meet real-life needs. Clients only draw what they require each month, which can significantly lower the total repayment after a case is settled. This targeted approach helps prevent excessive borrowing and encourages responsible financial planning throughout the litigation process.

By providing installation-based funding with client-friendly terms, Legal-Bay offers clear, flexible solutions to their customers' financial needs. The program is ideal for individuals involved in personal injury, slip and fall, medical malpractice, motor vehicle accident, Workers Comp. or 3rd party workers comp. claims or work injury claims, and many other types of cases.

Legal-Bay is one of the best legal funding companies in the industry, known for their helpful staff and quick turnaround. While sometimes pre-settlement funds are referred to as loans on lawsuit or lawsuit loans, there are no credit checks or collateral required for legal funding. The money is an immediate cash advance against a plaintiff's anticipated settlement award, not a conventional loan. The non-recourse lawsuit funding is risk-free, as the money doesn't need to be repaid should the recipient lose their case.

To apply right now, please visit the company's website HERE or call toll-free at: 877.571.0405 where agents are standing by to answer your questions.

Consumer Pre-Settlement Litigation Funding: An Emerging Asset Class 

By Joel Magerman |

The following was contributed by Joel Magerman, Managing Partner of Bryant Park Capital, a leading investment bank specializing in litigation finance, with over 35 completed transactions totaling more than $2.4 billion in this sector alone.

Executive Summary: 

  • Third-party funding for consumer litigants has been a growing industry in the U.S. since the 1980s.  
  • The need for third-party litigation funding emerged because banks do not typically provide advances to litigants whose only collateral is potential proceeds from lawsuits. 
  • Today, there are over two hundred companies providing pre-settlement and medical lien litigation funding to individual claimants. 
  • Over the past 25 years, consumer litigation finance has matured into an investment grade asset, with over 25 separate securitizations representing over $2.7 billion of invested capital since 2018. 

Why the need for litigation funding? Insurance companies have found that a plaintiff’s need for a financial settlement is often a driving force in settling a case for a lower amount than if the case runs its course to a hearing. Litigation financing provides equal footing to a plaintiff to pursue claims due to an injury they have incurred due to another party’s actions or negligence.

A recipient of litigation funding benefits from certainty and speed of funding, and the fact that the funding is non-recourse. For the attorney representing the client, litigation funding allows the legal process to play out and maximize the plaintiff’s settlement while providing some financial relief until a settlement is finalized. At the same time, third-party litigation funders see the potential upside in underwriting pending lawsuits and earning a return on non-recourse advances. Generally, third-party litigation funders have no control over the litigation they fund, allowing the plaintiff and their legal counsel to decide their legal strategy. 

Medical lien funding, which is closely related to consumer pre-settlement funding, provides funding to providers of medical services (imaging, doctors visits, physical therapy, surgery, etc.) to these same plaintiffs who cannot pay the medical provider until a claim is adjudicated and paid. Funding these liens is effectuated by buying the lien or the LOP (Letter of Protection) from the medical provider, depending upon state statutes.  

General Industry Data (Pre-Settlement Litigation Funding) 

  • Funding amount as percentage of expected case value: ~10-15% 
  • Typical funding size: $1,000-$50,000 
  • Asset-level IRR for the funder: typically 25-35%  
  • Multiple on invested capital: 1.4-2.0x 
  • Weighted average life: 1-3 years 
  • Application time to funding: typically a couple of days 
  • Number of market funders: 200+ 
  • Non-recourse to the plaintiff  

An Emerging Asset Class 

In recent years, consumer litigation financing has become more attractive to investors due to rising inflation, increasing interest rates, and volatility of many other classes of investments. The consistent robust returns that are uncorrelated with the economy make litigation funding attractive. Alternative lenders and multi-strategy funds have invested in litigation finance, with U.S. funders categorized into dedicated funders (specialize in litigation finance), multi-strategy funders (entities that have established a dedicated litigation finance strategy), and ad hoc funders (occasional participants in litigation finance). These investors have increasingly diversified their investments, by allocating funds to multi-claim portfolios and making fewer single-case investments. 

 Institutional investors have continued to enter the litigation funding industry, both through directly funding litigation and through providing billions of dollars of financing to litigation funding companies. There have been approximately $2.7 billion of securitizations of consumer pre-settlement assets since 2018, plus billions of dollars of advances to market participants from credit opportunity and hedge funds, as well as private equity firms such as Blackstone, Parthenon, Further Global, Edmond De Rothschild, and UBS. We expect that the investor sentiment of diversifying into litigation finance will continue in coming years. 

Learn More 

To uncover additional industry and investment insights, download the full BPC Litigation Finance Industry Primer. 

Florida Funder Targeted by Class Action over Data Breach

By Harry Moran |

Whilst funders are often eager to support class actions on behalf of customers who have been harmed by cybersecurity attacks on other companies, a new complaint filed in Florida seeks to represent individuals who suffered losses because of a funder’s own data breach.

Reporting by Insurance Journal covers a class action that has been filed targeting litigation funder US Claims Capital over allegations that it failed to protect its clients’ personal data. The filing of the claim in the U.S. District Court in Miami follows a data breach in January of this year, with the plaintiff alleging that the funder had not implemented sufficient cybersecurity measures and therefore had not properly secured the personal data of the plaintiffs it had provided funding to.

The lead plaintiff in the lawsuit is a Kansas resident named as Timothy Vactor, with the complaint looking to represent other plaintiffs and clients of US Claims whose personal data was exposed as part of the cyberattack. The filing argued that due to the breach, the plaintiffs’ “private information is forever exposed and unsecure”, and that the “exposure of one’s private information to cybercriminals is a bell that cannot be un-rung”.

The funder had reportedly informed plaintiffs it had worked with of the data breach in a letter sent on April 11, over three months after the cyberattack on January 7. The letter informed US Claims’ clients that “certain information related to you may have been acquired by an unauthorized individual as part of the event”. The funder subsequently provided these individuals with an insurance policy in case they had suffered financial losses, as well as some assistance around identity theft protection and cyber monitoring.

At the time of reporting, US Claims has not filed a response to the complaint.