Individuals seeking loans typically put up homes, cars or other tangible assets as collateral. But what if the loan applicant is confident they could win a personal injury suit if only they had the cash for a lawyer?
Turns out, lawsuit financing (a.k.a. settlement loans) is a big business. One of the largest settlement loan providers, Chicago-based Preferred Capital Lending, began serving clients in Illinois more than 10 years ago (Las Vegas Business Press).
Not only individual plaintiffs, but also attorneys occasionally take out such loans. One lender, National Lawsuit Funding, only requires repayment of the loan if the plaintiff wins his or her case. It's not clear from Preferred Capital's website whether or not they have the same policy.
The lending process seems pretty straightforward, at least through Preferred: Applicants fill out a brief online form, including type of accident and amount requested, and then Preferred contacts the attorney to fill out a one-page form. Like any other loan, the lender wants to know just how likely it is that the "venture," in this case a lawsuit, will succeed.
About 90 percent of the settlement loans made by Preferred are for automobile accidents, workers compensation, medical malpractice and other injury suits, according to the Las Vegas Business Press article, which also claims that business has been booming recently.
But one veteran personal injury lawyer quoted in the article, Las Vegas-based Ed Bernstein, believes settlement loans are a bad idea:
"If a client took out a loan for $20,000 on a $100,000 case, in a few years after interest and fees, the client owes $100,000. Where's the incentive to show up in court when you have to pay that $100,000 back to someone else?"
One of the most attractive aspects of settlement loan providers is that they do not check traditional credit indicators and only consider the merits of the case itself.
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