Lawsuit Loans – You don’t get something for nothing!
National lenders are running television ads in Missouri, claiming to offer “no risk” lawsuit or litigation loans to injury victims with pending lawsuits. While the lenders advertise that you don’t pay back the money if you don’t win your case, there is more at stake.
Lawyers cannot take part in no risk loans, or “nonrecourse” loans in Missouri. In fact, lawyers are forbidden to participate in these loans and risk suspension or disbarment if they agree to repay a nonrecourse lender. While some lawyers may “look the other way” and agree to protect the lender, the practice is not allowed according to the Bar’s Office of Chief Disciplinary Counsel, the group that regulates law licenses. The Missouri Bar treats these loans the same way they view lawyers lending money to clients—they are prohibited as “champerty.” A lawyer who is willing to break the ethical rules cannot be trusted to represent you, and will cause problems for you if he is disbarred in the middle of your case!
The loans themselves are also dangerous. The interest rate on any unsecured loan is high, and one that speculates on the outcome of a lawsuit is no exception. No one would borrow even $1,000 if they had to repay $3,000 or $4,000 to get the money. I have personally seen lawsuit loan interest fees and rates that equaled 200 or even 300% interest on top of the borrowed amount. In fact, I sued one such lender after it made a loan to a client who came to me when his initial lawyer withdrew from his lawsuit.
There are ethical lenders who loan money to injury victims, and these lenders charge rates more in line with what one would expect for a high rate credit card. These lenders make traditional unsecured loans, and they are entitled to repayment even if you lose your lawsuit. They can and often do sue injury victims for the loan amount and interest if the injury case is lost.
Even a case with clear liability is speculative. Any jury trial can result in a verdict against the victim. Since no lawsuit outcome is guaranteed, taking a lawsuit loan is a risky proposition. Having a loan come due after losing a lawsuit will not only add insult to the loss, it will put you further in debt.
If you are considering a loan during your lawsuit, ask to see the loan documents BEFORE you take any money. Make sure you understand the full amount of fees and interest, and ask what happens if your case takes more than two years to conclude—which is highly possible given appeal proceedings after a verdict. If the lender won’t show you the fees and interest, in writing, don’t take the loan.