After netting a paltry $111 from his $150,000 settlement, Elwin Francis of Brooklyn has filed a lawsuit against his lawyers seeking compensation for not looking after his interests, the New York Law Journal reports (subscription required). His attorneys took to 33% of the settlement for their contingency fee, while an astonishing $98,415 went to litigation finance companies; Francis had borrowed an estimated $27,000 from two companies since his injury in 2007. Over the 5 year course of the litigation process, the interest costs on the loans grew to over 260% of the amount borrowed.
There are no regulations that govern the rate of interest that lawsuit lenders may charge, which can exceed 100% annually. In New York, an annual rate higher than 16% is considered usury. Lawsuit lending companies claim that because the borrowers are not required to repay if they do not win their case, their product is not considered a loan but an investment; creating a loophole to avoid consumer protection laws and to lure in vulnerable New Yorker’s who otherwise cannot survive financially.
“Advancing money against future lawsuit winnings is a murky and largely unregulated business”, the NY Post noted in December 2011 when another Brooklyn man was left owing $116,000 for a $4,000 lawsuit loan.
With little regulation and the ability to entice consumers into high interest contracts, Francis feels he was misled and his lawyers should have made him aware of the implications of his funding agreements in conjunction with his settlement. He also claims he was never made aware that he had nothing to lose by going to trial – and that if he lost, he would not have to pay back the litigation funding.
“Lawyers need to be held to a reasonable standard of care when it comes to these funding agreements. They need to put their clients’ interest first,” Francis’s Lawyer was quoted.
Lawsuit lending compromises the integrity of the civil justice system, takes advantage of those most vulnerable, and incentivizes frivolous lawsuits. Recently, Colorado Attorney General John Suthers ordered lawsuit lenders in to comply with the state’s consumer protection laws. Nebraska, Maine, and Ohio have enacted legislation to limit the practice; Maryland fined Oasis Legal Finance $105,000 and threatened to sue the company for violating usury laws. So far, New York lawmakers have failed to address the issue – our legislators must take action and pass legislation to restrict or prohibit lawsuit lending to protect our citizens from this growing threat.