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April 16, 2015

Consumers Beware: Lawsuit Lenders Go Digital

The good; the bad; and, the ugly.

Yes, the Internet is full of all of the above. One minute you can be Skyping with your relative across the country; the next minute, surfing cat videos on YouTube. There are apps that help boost your productivity; and, those that help you waste hours of your workday. Of course, the “ugly” side of the Internet is in the eye of the beholder — but we tend to think the appearance of new sites that help fuel the growth of the lawsuit lending industry fall into that category.

Lawsuit lending, of course, is that burgeoning industry in which a plaintiff receives “up front” cash from a third-party lender to cover immediate living or medical expenses for the duration of his or her lawsuit. The plaintiff then repays the loan plus interest to the lender out of any settlement or judgment award resulting from the case.

In many states, lawsuit lenders operate below the radar of state regulators. And, many lenders charge an interest rate of 60 percent to 150 percent of the loan amount (and there are many examples of interest rates reaching as high as 250 percent).

It’s not surprising that this industry has taken its questionable practices to the Internet. For example, we recently discovered a Web site — LegalFundingCentral.com — which promises to help you “get a cash advance on your lawsuit in minutes!”

The Web site’s home page features a quote from the American Bar Association: “Legal Funding Central streamlines finding a litigation funder … like what Lending Tree does for mortgages.” And then there’s LexShares, a company launched last year that touts the ability to allow customers to “invest in justice” and “earn a return from litigation finance.” In a turn on traditional lawsuit lending (or litigation financing), LexShares allows you to create an account, receive information on “expertly selected cases”, finance a case, and receive a share of the recovery. Of LexShares, Bloomberg’s Paul M. Barrett wrote:

“What sounds like a splendid win-win proposition, sweetened by social-media pixie dust, will not deliver happy news for everyone. Litigation finance inevitably encourages more lawsuits, presumably with deep-pocketed corporations as the targets. And turning litigation into a vehicle for third-party speculation—er, I mean, investment—raises potentially sticky questions about potential conflicts between clients’ interests and those of outside funders looking to maximize returns.”

Barrett hits the nail on the head. There are enough questions raised by the “offline” practices of the lawsuit lending industry, that the growth in “online” lawsuit lending gives us (as it should everyone) pause.

While we don’t expect policymakers to “unplug” these online services, they certainly strengthen our call for legislators to take a close look at reining in the lawsuit lending industry to protect consumers and bring the industry more in line with other consumers lenders operating throughout the country.

Delaware General Assembly Blog Delaware Wants to Take a Closer Look at the TPLF Industry   Third Party Litigation Funding (TPLF) Blog European Parliament Legal Affairs Committee Adopts TPLF Legislative Initiative Report International Initiatives, Third Party Litigation Funding (TPLF) Welcome to Delaware Sign Blog Another Federal Court Now Requires Disclosure of Third Party Litigation Funding Third Party Litigation Funding (TPLF) litigation funders, beach scene Blog Sun, Sea, but no Sand(box) for Florida Lawsuit Investors Lawsuit Lending, Third Party Litigation Funding (TPLF) Blog Third Party Litigation Funding: Buying Trouble Across the Globe International Initiatives, Third Party Litigation Funding (TPLF)

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