By now, we’ve all seen a tv advertisement proclaiming that the company will give you “cash before your lawsuit settles” or that you can “receive cash for your lawsuit today.” Companies like Oasis Legal Financing, Light House Legal, and LawCash spend millions of dollars in advertisements to get injury victims to contact them.  The pay-off?  These companies, according to a recent New York Times article, are largely unregulated and charge incredibly high interest rates (exceeding 100 percent a year).  These companies argue that they need to charge a high interest rate since a plaintiff is not required to pay back their loan if they lose their case. 

by kongsky

Do These Companies Actually Give Loans?

A loan is traditionally a written or oral agreement to temporarily transfer money from one person (or entity) to another person (or entity).  The person receiving the money promises to repay the amount of money (this can be on an installment plan, all at once, or some combination of the 2).  Usually a loan includes the charging of interest, though depending on the type of loan, this amount may be regulated.  It's best to have these loans in writing (usually called a promissory note, a sample of which can be found here)

Companies, like Oasis, claim that they are not actually in the business of making loans since the person receiving monies doesn’t have to pay back the money given to them (if their case does not settle).  Instead of calling these transactions loans, these companies call them investments, advances, financing or funding.  The benefit of calling these transactions investments or advances is that they are able to skirt existing lending laws. 

Consider an investment:  you give someone money, expecting that the business will make enough money to pay you back, plus give you a solid return on your investment.  Here, these companies are betting that not only will you receive a settlement, but your settlement will more than cover the amount you borrowed. 

Should You Ever Use A Lawsuit Loan?

Every person faces their own unique situation and challenge, so there is no uniform answer.  However, as medical bills continue to pile up, savings deplete, and jobs are lost, there may not be many options for someone waiting for a lawsuit (particularly a class action) to settle.  It’s important that whenever you are borrowing, taking, or lending any type of money, that you read a contract.  There are many different ways to borrow money, however, whenever a company pitches that it is “fast and easy” to borrow cash from them, you need to first ask what the interest rates are.  However, there are several non-traditional ways of borrowing money, whether from family members or through the use of credit unions.  In fact, if you are in the middle of a lawsuit, some states will allow your attorney to loan you money for things like medical bills and reasonable expenses. 

What do you think, are these lawsuit loans ethical?