Are Lawsuit Cash Advances Unconscionable?
Every personal injury lawyer has encountered at least one client in need of a lawsuit cash advance. Clients have medical bills, college tuition payments and need to eat. But are the terms of those advances legally enforceable?
Justice Ellen Spodek of Brooklyn is set to make that determination in the coming weeks. She's hauled third-party lender LawBuck$ into court to defend $4,000 in loans made to police brutality victim Joseph Gill.
The $4,000 has grown to $116,000 in the five years since he obtained the cash advance.
That's because LawBuck$ charged Gill 59% and 70% annual interest, compounding monthly. Justice Spodek has indicated that these terms are usurious, reports the New York Post. She's also reprimanded the company for preying on the poor.
Joseph Gill and LawBuck$ are not unique. The lawsuit cash advance and funding industry is a $100 million a year business. It's mostly unregulated, which means usury laws do not apply and clear pricing is not mandated.
Some states have attempted to regulate the industry, but with little success. The companies lobby state legislators, arguing that they are not lenders, explains the New York Times. They are investors because plaintiffs do not have to repay the money if they lose their cases.
Whatever they are, lawsuit cash advances can cause more problems than they solve. Plaintiffs often end up owing the majority of their settlement or jury award.
Which is why you may have an ethical duty to caution clients against seeking lawsuit cash advances. Advances are just another factor to consider when advising a client on how to proceed.
So think about reading the loan terms the next time a client asks you about lawsuit cash advances. Explain the consequences, and point them to more reasonable options. Even if it's not your responsibility, it might be the right thing to do.
Related Resources:
- Be Wary of Lawsuit Funding, NYC Bar Opinion Warns (FindLaw's Strategist)
- Mall Lawyers Offer Advice, Discounts to Clients in Need (FindLaw's Strategist)
- Should the ABA Attack the 'Unauthorized' Practice of Law? (FindLaw's Strategist)