With High Standards, Legal Funding Helps Victims Get Justice
A single mom is injured operating faulty machinery. A husband is involved in a serious car accident. A retiree breaks her hip due to a store’s negligence. Suddenly faced with mounting medical bills and unable to work, they struggle to afford basic personal expenses. While they can take legal action against the responsible party, it could take years before they received financial compensation for damages. In the meantime, they worry how they’ll survive until a decision is reached. In these real-life situations, legal funding offered a lifeline.
The defendants in cases like these, frequently multi-billion dollar corporations, can use their deep pockets to drag out the legal process and extract concessions from victims. As a result, plaintiffs who need money immediately often have no choice but to accept less than they deserve. But legal funding can level the playing field.
Unfortunately, the majority of Americans are not in a position to cover an unexpected $500 expense (Bankrate, 2017). This puts them at a significant disadvantage if they ever find themselves the victims of an accident warranting legal action, particularly if it inhibits their ability to work. By providing access to a pre-settlement cash advance, the legal funding industry helps people with credible personal injury claims meet everyday financial needs as they pursue legal action.
At the American Legal Finance Association (ALFA), we are committed to promoting fair, ethical, and transparent funding standards to protect legal funding consumers. ALFA is built on a belief in equal access to justice, a commitment first laid out by the Magna Carta, which included Clause 40: “We will not sell, or deny, or delay right or justice to anyone.” Legal funders seek to uphold this principle in a too-often rigged legal system.
Pre-settlement advances differ from loans in several key respects. Take the real examples described at the opening of this article. After reviewing their potential cases, a funder would offer the victims an advance on a potential settlement. Their lawyers would then review the funding agreements, and upon approval, the individuals can receive a cash advance. Since the advance is not a loan, they only need to repay the advance if their case results in a financial award. They are not required to put up collateral, and the advance has no impact on their credit. In short, the advance allows these individuals to pursue justice free from the pressure of their immediate financial needs.
To ensure consumers have access to this critical resource, the industry needs smart regulation. Appropriate rules and oversight will preserve the value of legal funding for consumers, helping to weed out bad actors looking to exploit the vulnerable. ALFA actively supported legislation in Oklahoma, Indiana, Tennessee, and Vermont that has established licensing requirements, clear and comprehensive disclosures, and public complaint portals. As part of our commitment to consumers, we also require our members to abide by the ALFA Code of Conduct, which promotes the highest ethical standards and best practices, including review of agreements by attorneys, five-day cancellation, and non-interference in legal action.
Powerful interests oppose the legal funding industry and threaten to reduce or eliminate access to this critical option for consumers. Insurance companies, for example, are advocating for interest rate caps because they curb the size and number of claims they have to pay victims. Given the higher risk profile of pre-settlement advances, rate caps, like New York’s proposed rate of 16 percent, threaten to drive funders from the market. This would cut off access to a product that helps victims fight for what’s fair.
When a consumer has nowhere to turn after an accident, legal funding offers a critical safety net. Smart regulation can fortify this safety net, and help protect consumers from deceptive and abusive practices. Ultimately, with standards and regulation in place, legal financing can work the way it was designed to, empowering consumers and promoting justice, no matter the cost.
Kelly Gilroy is the Executive Director of the American Legal Finance Association.