Consumer legal funding (CLF) is a type of alternative litigation funding (ALF) for any plaintiffs involved in legal disputes like personal injury cases. CLF refers to a transaction between a plaintiff and CLF company. A CLF company provides the plaintiff money in exchange for a portion of the future judgment or settlement awarded.
Many myths surround CLF. One myth, for example, an individual may believe obtaining money through a CLF business is like going through a bank or payday lender. While legal funding is similar to a traditional loan like interest rates-- it’s not. CLF isn’t a loan at all. Instead CLF is non-recourse legal funding. Thus, there’s no repayment when a plaintiff loses the case. Also, the CLF business doesn’t check credit history and doesn’t require collateral before providing money to a plaintiff.
Along with myths surrounding CLF, there are also facts. These facts can help a plaintiff decide whether seeking legal funding from a CLF company is a good deal or potential problem.
Contract
A plaintiff must sign a contract to receiving the legal funding. Generally, a contract discloses information such as the amount of money, an itemization of a one-time fee, interest and repayment amount. For example, a CLF business and a plaintiff may agree to have the repayment start six months after the contract’s signed. The six month cycle may continue for 36 months or until the case concludes.
A plaintiff has approximately five days to cancel the agreement-- after signing the contract.
A Plaintiff Doesn’t Receive Large Amounts of Money
A CLF business doesn’t provide a plaintiff with non-recourse funding in the million dollar range. Although money figures vary depending on the case, a plaintiff may receive funding starting in the hundreds to the thousands of dollars. Regardless of the amount the plaintiff has to repay that amount-- if he wins-- plus interest. The interest amount varies. For example, a plaintiff who requested $4,000 in funding may repay $6,600-- or higher-- back to the CLF business.
Help with Debt
Typically, a plaintiff seeking CLF isn’t doing so to take a vacation. The money doesn’t cover litigation costs or legal fees either.
Instead, a plaintiff pays bills while waiting on the lawyer to resolve the case. Some bills usually paid with non-recourse funding include car payments, food, utilities, medical bills, household needs, children’s tuition and delinquent child support payments. In fact, over 62 percent of legal funding obtained went to stop either an eviction or foreclosure action, explains American Legal Finance Association, or ALFA.
Demographics on a Plaintiff Seeking CLF Funding
It’s not a surprise that anyone seeking CLF isn’t wealthy. Instead, majority of people seeking non-recourse funding are lower to middle income, reports the Rand Institute for Civil Justice. Many applicants are younger than 44 years old, female, single and without any bank credit cards, also according to Rand Institute for Civil Justice.
Conclusion
A CLF company who provides a plaintiff with a non-recourse funding doesn’t have the right to assert itself into the legal dispute or participate in any settlement negotiations. The company provides upfront money to a plaintiff involved in an ongoing lawsuit with the promise of repayment if the case concludes in a verdict for the plaintiff or settlement.
Read More:
Rand Institute for Civil Justice: What is Consumer Legal Funding?
American Legal Finance Association: About Legal Funding
