What is a litigation loan?
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In some instances when a lawyer can’t run your case via no win no fee taking out third-party litigation loan is one way of funding a claim.
What is a litigation loan?
Litigation funding is when a business, plaintiff or lawyer reaches out to a third-party funding organisation to loan money for any legal costs. Technically these types of capital advances aren’t actually considered loans because the advance is conditional in nature and is only to be repaid by the plaintiff following a successful claim for compensation. There are many different names for this type of funding, including legal financing, litigation financing, professional funding, settlement funding, third-party funding, legal funding, lawsuit loans and, litigation funding.
Regardless of what name has been given to such advance by the person presenting the idea to you, this is how they work.
- It is a cash advance
- Must be made by a nonparty
- Paid to a plaintiff to help them pay for legal proceedings
- Are paid back only on successful outcomes
- May be subject to crippling amounts of compound interest
Although that may sound simple enough, litigation loan contracts can be complex and confusing to the untrained eye. The legal financing industry is also unregulated in many parts of the world. This can means that the final amount you receive after the loan has been deducted can be much less than you expected. Litigation lending is a breeding ground for predatory lenders because of the large amounts of money involved in personal injury cases. To make things worse, funding companies also offer lawyers huge incentives in the form of kickbacks and commissions for them to persuade their clients to accept these types of deals.
In 2018 Wall Street banker George Soros devised a plan to securitise litigation lending promoting 20% returns. As good as that sounds to investors, the 20% ROI he is talking about is in effect coming straight out of the plaintiff’s pocket.
If you are asked to enter into a litigation loan arrangement, think carefully, seek independent legal advice or get a second opinion.
