How Litigation Finance Has Changed (for the Better)
It seems odd to say that an industry that’s only twenty years old has had a long history, but legal loans definitely fall into that category. If you look at where the business is now to where it was before the Y2K bust came and went, you’d barely recognize it. Most of the changes in that time benefit the client. Considering most clients who take funding don’t know the history, here are a few things that have changed, and how they help plaintiffs.
The rates have come WAAAY down
At the turn of the century, very few companies were doing this kind of funding, and most of the owners were using their own money. That made them very nervous. When they tried to get investors on board, it was a tough sell because there was no history to fall back on. So many companies started using incredibly high rates to ease their investors’ minds. It was standard to charge between 4.99% and 5.99% compounded monthly in those days, even up to 10% compounded monthly. If you borrowed $10k in those days and your case took 3 years, you could be paying back $70k or more.
Nowadays, companies have better track records and investors feel more comfortable coming on board. Because of that, different interest rates are used, in many cases less than half what they were just a decade ago. Some companies also have the flexibility to experiment with cheaper fee structures that benefit the client.
Attorneys have become more familiar with the process
When the industry began, most attorneys didn’t know much about it. They simply knew that, in most states, they weren’t ethically allowed to loan money to their own clients. When funding companies came along, the attorneys saw them as just loan sharks that were trying to gouge their clients. Sadly, in some cases, they might have been somewhat correct.
This meant that many attorneys wouldn’t cooperate with funders, even if it was a detriment to their client’s case value. Now, there are very few attorneys who don’t know what litigation finance is. Most are not only on board with funding companies, they will even refer their clients TO the funders! They understand that helping the client survive financially will only increase the overall settlement value of the case. Attorneys are seeing that legal loans are a very practical and helpful tool.
The industry is now regulated
In the old days, companies not only charged very high rates, but they often didn’t even write the rates into their contracts. Some did, but hid the numbers in paragraphs of legal jargon. The funding companies then (wisely) met with attorney generals in several states and came up with guidelines that needed to be followed. Now, contracts include charts that lay out specifically how much will be paid back over certain periods of time. (There may be companies who still try to hide the numbers. If you receive a deceptive or unclear contract, contact another funding company)
Different case types are now fundable
Because many owners and investors were using their own money, they tended to just fund the “safer” bets, like motor vehicle accidents and slip and fall cases. The underwriters back then would have just been scratching their heads if a trans-vaginal mesh case came their way.
Now, if you look at a company’s website to see what case types they fund, this list could be a full page long. Different companies specialize in different case types, but the fact is that there is a company who will fund virtually any case type you may have. The underwriters are more specialized, too. See below.
The underwriting has gotten much better
With legal finance a familiar business, it’s only natural that they would have hired better and quicker underwriters (who are usually attorneys). Having a more knowledgeable underwriter helps in two ways: 1) they can evaluate a case better, often lending more money, and 2) they are much quicker than they used to be. This helps plaintiffs not only get approved more often, but quite often more quickly.
Too Long, Didn’t Read?
If you tried to get funding on your personal injury case 15 years ago, it would have been a frustratingly long process that would have cost you an arm and a leg. Now, that same case can be funded more quickly with you understanding what you’re getting into far better than a decade ago. This results in you having peace of mind and allows your case to settle at its true value.
To find out how you can get a pre-settlement loan, contact our office today.