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  • March 16, 2018



  • Litigation Lenders Help Boost Lawsuits

    Third-party financing of lawsuits, also known as lawsuit loans or lawsuit lending, is increasingly used as a way to fund costly litigation. The practice allows individuals to file lawsuits and then apply for a loan with the lawsuit lending company using the pending suit as collateral.

    The prospect of a "cash advance" is extremely enticing for a patient, especially one who may have bills piling up.

    In exchange, the patient must agree to pay the lender back – plus a "lending fee" – out of the proceeds from the final judgment or settlement. Interest is often compounded monthly and the annual rate can exceed 100 percent. Unsuspecting plaintiffs may win their lawsuits only to receive a small fraction of the settlement after legal fees and interest from the cash advance. Plaintiffs may even owe money, ending up in debt to the lawsuit lender!

    Such companies are not regulated by most states, or by federal laws. The lenders claim their loans are actually "investments" and, therefore, the transactions can dodge banking rules and lending laws that limit interest rates.

    ISMS is concerned that lawsuit lending companies are taking advantage of patients’ circumstances and encouraging frivolous medical liability lawsuits.

    In recent years, Arkansas, Indiana and Tennessee have enacted laws to limit interest rates in lawsuit loans to the same maximums set by existing consumer lending laws, or to require disclosures from lenders.

    ISMS recently adopted a resolution to urge legislative changes to require that any party to a lawsuit must disclose all financial transactions related to the suit from third-party sources.

    At the end of the day, these lawsuit lenders can end up passing unforeseen costs to patients and make Illinois’ already-troubled medical liability landscape worse.




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