Last year, Attorney General Eric Schneiderman filed suit against one of these lending outfits.
You may have seen commercials or billboards advertising quick up-front cash advances for plaintiffs for pending lawsuits and settlement pay-outs. This is a widespread practice that remains unregulated in New York. Injured parties may need to borrow money for living expenses or to pay medical bills while they wait for payment from a claim or settlement.
Unfortunately, due to the lack of consumer protection laws, the lenders often charge unconscionable rates that some reports have found to reach as high as 142 percent. It is an industry that targets some of the most vulnerable citizens when they are financially desperate. The practice also encourages the filing of questionable lawsuits, including speculative claims against small businesses. Luckily, there is an effort by legislators in Albany to apply New York’s consumer protection interest rate to these cash advance agreements.
As the New York Post recently reported, some lenders are specializing in financing claims filed against New York City, which is well known to quickly settle claims and pay plaintiffs – a situation that carries little risk, unless you are the taxpayer. The lenders ultimately take advantage of consumers, drain municipal budgets, and compromise the integrity of the civil justice system.
Last year, Attorney General Eric Schneiderman filed suit against one of these lending outfits. His office accuses New Jersey-based RD Legal Funding of scamming 9/11 first responders and former NFL players awaiting settlement money from the federal Ground Zero compensation fund and the concussion settlement, respectively.
Both situations illustrate one of the prime problems with this business model; lenders claim that due to the risk of litigation, and the non-recourse nature of their advances, the product they offer should not be characterized as a loan. Rather, they argue, there is investments in a future pay-out. But, the fact is, in the case of existing settlements and compensation trusts, there is little risk – the payments are guaranteed.
NFIB/NY and our partners at the Lawsuit Reform Alliance of New York hope to see a bill to rein in and control the practice S.3911A/A.8653 pass both houses in this legislative session. Please contact your local legislators to support this important piece of legislation that will not only protect consumers and business, but our system of justice itself.