Also known as “litigation funding”, “pre-settlement funding,” or even “car accident loans”, lawsuit lending is the practice of advancing to individuals who are suing over injuries a portion of their potential legal recoveries while their case is pending. Because the industry is completely unregulated, lenders, often deep-pocketed hedge funds, can charge ruinous interest rates as high as 100% or more.
Lenders prey on vulnerable New Yorkers who are desperate for cash and unable to work. In the short term, their bills are covered. But when and if a judge or jury finds in their favor, they often see little, if any, of the award for their injuries because the lender takes it all. Thankfully, a coalition of various business groups and advocates as come together to mitigate lawsuit lending.
Litigation financiers skirt laws that protect consumers by exploiting a loophole that enables them to call the money they front to clients’ “investments” and “non-recourse agreements” rather than loans. Just under a dozen states have enacted laws putting parameters on this practice. Otherwise, hedge funds who engage in litigation funding have virtually free reign to prey on vulnerable individuals. Lenders, on average, make 68 percent profit on these loans. And the industry has grown exponentially over the past decade, with lenders earning multiple billions annually.
This is a massive issue in the trucking industry as nuclear verdicts and settlements has exploded in recent years. The American Transportation Research Institute (ATRI) released comprehensive research that confirms that large verdicts against trucking fleets are increasing dramatically, both in number and in size of awards. ATRI’s research is partially based on a newly created trucking litigation database that provides detailed information on 600 cases between 2006 and 2019. In the first five years of the data, there were 26 cases over $1 million, and in the last five years of the data, there were nearly 300 cases.