The New York Post published an op-ed from LRANY’s Adam Morey ahead of a hearing held on Wednesday May 16th by the New York State Senate Standing Committee on the issue of lawsuit lending:
Lawsuit funders sniff out tragedy to cash in on misfortune. They spend heavily on advertising that targets the disadvantaged and desperate.
Companies offer money up front for pending lawsuits and claims. Funders promise “cash now,” with some offering no-credit-check approval in just one day.
But the truth is the industry is rife with unscrupulous actors looking to exploit the legal system.
Buried in the contracts, consumers find that interest is often compounded monthly, with annual rates that exceed 100 percent. People who sign these lending agreements may ultimately win their lawsuit only to take home a tiny fraction of their award — a majority of the money ends up in the pocket of the lender, and all of this comes as the victim’s attorney also gets to take a third of the winnings.
Lenders claim that because repayment is contingent on the borrower winning the case, the product they offer is especially risky and shouldn’t be classified as a loan. This allows them to charge outrageous interest rates, well beyond those allowed under New York’s consumer-protection law.
But just how risky is it? A study published last year by Vanderbilt Law found that 84 percent of claims filed in New York’s state courts are settled. Another report revealed that lenders are choosy about their targets, with one funder furnishing just 10 percent of the loan requests it received. And as the Times revealed in devastating detail, lenders and lawyers often work together to negotiate the payout.
The result is a business model that takes advantage of consumers and turns the civil-justice system into a profit center.
Read Adam’s full op-ed here.