Need a little collateral for a loan? No problem, just leverage your lawsuit. Las Vegas Business Press has an interesting article about lawsuit financing (a.k.a. "settlement loans") and our State Bar's supposed "mixed messages" regarding the subject:
The cautious attitude on the part of some attorneys likely stems from the conflicting messages coming from the State Bar on the subject. Initially, a State Bar ethics committee opinion said the practice of Nevada lawyers' referring clients to third-party lenders was acceptable. However, the State Bar Counsel, which enforces the rules, has since come out against lawyers referring clients' to settlement lenders.These "settlement lending" agencies appear to offer nothing more than payday loans for the litigious, charging anywhere from 30% to 180% interest on the loans. One client's testimonial is just sad:
"I called a couple other places and they didn't sound good, and my lawyer referred me to (Preferred Capital)," said Renee Locke, a customer of the Las Vegas Preferred Capital Lending office.Yes, and by the time her case is done (say five years for the sake of argument) that $1,500 will be anywhere from $3,750 to $15,000 depending on the lender she chose. And what if she ultimately loses the case?
Locke spent more than 30 years as a casino dealer before being disabled by an on-the-job injury two years ago. She has been fighting for a workers compensation settlement since and scraping to get by, she said.
"I am on disability and it is hard to get banks to lend me money," Locke said. She has now taken out five loans. The former dealer also turns to payday lenders, but says her overall experience was better at Preferred.
"They were so nice to me, and they didn't try to take a lot of my money," she said. "Sometimes I'd ask for $3,000 and they'd just give me $1,500. And I don't have to pay it back until my case is done."
Las Vegas attorney Ed Bernstein tries to talk his clients out of leveraging their settlements, reasoning:
"If a client took out a loan for $20,000 on a $100,000 case, in a few years after interest and fees, the client owes $100,000," he said. "Where's the incentive to show up in court when you have to pay that $100,000 back to someone else?"Seems very telling that Ed is more concerned about his clients showing up than digging their financial graves.
What do you guys think? Are these lenders taking advantage of people who can't do the math, or are they providing a valuable service? Do you refer clients to them? Perhaps more importantly, what is the Nevada State Bar's stance on attorney referrals to these lenders?
(LVBP)
The legal loan sharks are scum. They offer "non-recourse" loans but then essentially take over the case because they may have a bigger financial stake in the case than the victim does. In most cases they are resistant to reducing the amount owed to them to assist in reaching a settlement even if the proposed reduction would allow them to double the initial investment.
ReplyDeleteI always advise against these loans and never recomend any of the loan sharks. Unfortunately, in today's economy people who are seriously injured can be in deep trouble even if they miss just one paycheck. Then I'm forced to either assist the client with the paperwork or lose the case. I will try to steer clients away from lenders that have higher interest rates or lenders that have been unwilling to adjust the payoff to allow the case to settle but they all suck. I'd be interested in knowing any better alternatives that may be out there though.
So what? They charge a lot of dough. If the market is that great, and the returns that fat for these lenders, why aren't the soulless lowflifes who feast on the blood of the economy daily, such as WellsFargo, Goldman Sachs, Citibank, et al, not getting in this racket?
ReplyDeleteThe fact is that high-risk loans have high interest rates. The best players in this market know who to lend to and what amount to safely lend.
Unlike the sheer scum of the earth sanctified by the Chief Devil, Ben Bernanke, these guys play with 'hard' money, or in common parlance, real money from real people.
I am sure they are tough to deal with, but it's so easy to stand apart from a deal and critique it - boohoo, billy had to pay so much interest!
The real test is whether a willing lender and willing borrower got together and signed the deal. That's it.
Pinkos go home, you are not needed here. (Or maybe the Great O can nationalize this business too, and the clients can then deal with bureaucrats like the ones at UMC. Hooray.)
who let 10:26 on here?
ReplyDeletesounds like one of those Review-Journal or Las Vegas Sun commenters.
A client came to me with a problem. After an auto accident she hired lawyer #1 who arranged one of these personal loans for $25,000 at 12% interest a month, compounded. Later the client changed lawyers and four years after the accident, lawyer #2 settled the case for $2,000,000 which included a six figure advance defendant made to the client before being represented. The $25,000 loan obligation with interest had increased to nearly $900,000. After attorney fees, costs, medical liens and repayment of the loan, the client stood to receive nothing from her $2,000,000 settlement. Lawyer #2 tried to charge the client 40% ($800,000) for the entire settlement including the advance paid before representation and without reducing the fee to include lawyer #1's attorney lien. Lawyer #2 also wanted an additional fee to challenge the personal loan. Our office sued lawyer #2 for overcharging the client and lawyer #1 and the lender for the champertous loan. Folks got reasonable. The client ended up happy. A little introspection on the part of lawyers who agree to these loans for their clients would be in order.
ReplyDeleteUsurious! Oh, wait, Nevada has no usury law.
ReplyDelete10:34, the fact that the site is evidently not run by fascist scum is what let him / her on. either out-argue the guy / gal or shut up. you gave away your inability to retort with that idiotic "this guy sounds like one of 'those' people" remark. If that's the case, thrall us with your acumen and eviscerate his argument. you buffoon.
ReplyDelete@10:26,
ReplyDeleteExcept that the transaction has external effects on the litigation, and, by extension, the likelihood that an attorney who took the case on a contingency will get paid. Clients who borrow money are less willing to settle for what they owe, because they have this belief that they should actually get to see cash at the end of the case, even if they already spent the entire settlement value.
As 9:24 mentions, third-party lenders also have to sign off on any settlement that reduces their take. This harms the attorney's ability to obtain the best/fairest settlement possible, because between the client's debt burden and the third-party lender, the attorney encounters substantial resistance to a settlement that the attorney, in his/her experience and professional judgment, is the best possible result.
Noone is arguing that higher risks don't entail higher interest rates. But the results are detrimental to the legal process.
How is it different than us taking 40% ?
ReplyDeleteI always refuse to let my clients get these loans.
ReplyDeleteI've seen lawsuits over unrepaid loans like this, one for about $1500 had escalated to about 20x that in a few years, and Plaintiff lender was claiming over $1k/mo in interest by that point.
@11:05,
ReplyDeleteSeveral differences:
1. We don't charge interest on the contingency. At least, ethical attorneys don't. If the case settles two years after representation, the lawyer doesn't charge 40% plus 10% monthly interest. Thus, the attorney is taking the risk that the value of his/her services will be less or equal to 40% of the total value of the case. The longer the case goes on, the less likely that becomes. The reverse is true for lenders.
2. Fiduciary duty. The lawyer has it. The lender doesn't.
11:02 AM - this is 10:26 responding. I understand that the lending process creates legal headaches for the clients and attorneys. I also understand that once the client gets the loan, spends the money and two years later finds out the loan will eat up the value of his case, he's likely to suddenly realize he was swindled and avail himself of all remedies available at law.
ReplyDeleteThat said, my argument stands. We can't tell clients what to do. We can refuse to go along, but we can't make them do something. Sheesh, you could build a Vietnam Vet sized memorial of all the stupid decisions clients have made over the years against my advice.
If the State Bar really wants reform, it will let attorneys in on the action. No one can value a case better than an attorney who is handling it. Let the attorney lend the client the dough at a "reasonable" rate - whatever the heck that is.
Or, even better, lets collateralize the debt obligations of these borrowers into instruments we can sell the retired Japanese fishermen who pay 100% upfront for longterm interest payments secured by the value of the PI case....oh, wait, that's kind of been done before.
Here's a better image of the stickfigure breakdown of the mortgage crisis explained, linked about.
ReplyDeleteUnfortunately 11:42, there is a major inherant conflict in the attorney lending the money. Now the attorney has a larger stake in the case than does the client. Many clients are already suspiscious of recommendations to settle a case because they think that the attorney is selling him/her down the river for the fast buck.
ReplyDeleteI do agree that the Plaintiffs' bar should take a more active role in pushing for new legislation governing these types of loans. High interest loans may be a necessary evil in some cases but the rates that are available now are beyond obsene.
Here is the skit by SNL on mortgage crisis. Let's collateralize lawsuit laws.
ReplyDelete12:42 PM - Sadly, reality does not conform to ideals, and if the Bar does step in, it will either drive away the few players in the market who do at least make these monies available, thus hurting needy plaintiffs, or it will create a regulatory quagmire that will inevitably favor a few connected firms who will fleece the hapless plaintiffs with impunity since no competition is possible.
ReplyDeleteThe solution is to encourage more opportunities to lend to plaintiffs, and the only way to do that is to open it up to attorneys and attorney affiliates.
More competition, not less.
12:42, Ayn Rand, is that you?
ReplyDelete10:26 may be correct that "The real test is whether a willing lender and willing borrower got together and signed the deal." But that's not what we're talking about, rather it's "willing lender and desperate-out-of-work-about-to-be-evicted-borrower." That the latter is in that condition is partially "bad things happen to good people" but that the condition persists is as much due to the cost and time required by the legal system to resolve disputes fairly.
ReplyDelete10:04 AM - Justice delayed is justice denied, as they say. You will get no argument from me about the absolute ridiculousness of waiting two to five years to collect a fair judgment in a PI case. However, the fact that the insurance industry runs the courts (and some might say the Discovery Comish) does not change the fact that these lenders are providing a service.
ReplyDeletePerhaps the State Bar can focus on some new 2010 project such as "To Trial in 12 months." Give us some hard ass discovery comish with broad powers, and we can bring justice to those who need it.
But I dream. In the meantime, don't take it out on the lenders. I remember in the old hood we had loan sharks who were beloved by those who needed dough and despised by those who looked down from comfy pads on the upper east side. These elitists never could answer the question of how some schlepp working off the books as a car repair man was to finance a new tool purchase from a bank or with a SBA loan. The guy on the corner typically displayed more common sense than the whole of Goldman Sachs' trading floor or Citibank's lending committee, etc.
@10:59:
ReplyDeleteWhere did you get that pic of Bullah?
@10:59 -
ReplyDelete"the fact that the insurance industry runs the courts (and some might say the Discovery Comish)..."
You actually believe that? I suspect the Insurance Defense Warriors would strongly disagree.
Once Associated Reporters stops serving lunch I hope they respond.
Here's the scenario I recently had. My 30 year old client got t-boned by a defendant making an illegal u-turn. The client had an L5-S1 herniation, incurred $30K in medical expenses, and was clearly surgical. She could not continue to work her well paying, labor intensive job. But, she needed to work, so she tried telemarketing. Allstate had a $100/300 policy. We did a policy limit demand where we calculated $30K in current meds, $120K in future meds, and $25K lost wages in the year since the accident. Allstate offered $34K to settle the lawsuit.
ReplyDelete7 months later, after the client had the discogram about a month presurgery, Allstate sent over a $100K tender of policy limits. During those 7 months, client lost telemarketing job and had to take out $1K/month from a loan shark or she would be evicted and not be able to feed her child. The client was in such bad shape, she was forced to accept the policy limit offer at that time even though my recommendation was to continue to pursue ligation.
The loan shark basically saved my client for 7 months. Allstate and the defendant ruined my client's quality of life. Seriously, I think the state bar should be more concerned about the insurance companies that force injured plaintiffs into these situations than the loan sharks. If insurance companies had to pay the interest to the loan sharks, I really think they would step up to the plate a lot sooner than they do.
1:07 PM - Of course the insurance industry does not run the courts. It just appears that way when you appear for the 100th time on a discovery motion that should be entirely unnecessary.
ReplyDeleteIt sucks seeing innocents like the one described by 2:08 PM get beaten up by the system.
I completely agree with the last two posts.
ReplyDelete2:08, 2:57, 3:12 Doesn't anyone over there at the 4 firm do any work?
ReplyDelete4:17 PM - all work and no play makes Jack a dull boy...
ReplyDelete441 yes it's me ayn rand but you can call me momma
ReplyDelete