This week, to continue the LRANY video series, we bring you a video on lawsuit lending. The predatory practice of lawsuit lending, also referred to as third party litigation financing, is essentially a legal form of loan sharking. The predatory practice seeks out consumers who have filed lawsuits and offers cash advances on pending lawsuits in exchange for a percentage of whatever award they may later receive in their lawsuit.
Lawsuit lending rates often exceed 100 percent annually. Currently in New York, any interest rate higher than 16 percent is considered usury and any rate higher than 25 percent is a criminal violation. Lawsuit lenders have found a loophole to avoid consumer protection laws by claiming their loans are investments, since the consumer only repays if the lawsuit is won. However, once the case is won the consumer can end up owing the entire judgment, or even upside-down in debt to the lender.