Sometimes referred to as ‘lawsuit loans,’ funds given by third-party legal funders are not loans at all. Loans are paid back, typically with interest, regardless of what happens with the money once it’s provided. Legal funding is offered on a non-recourse basis, so funders get nothing if the cases they choose aren’t successful. When they are, funders may take what some describe as the lion’s share of an award.
Does Consumer Legal Funding Put Consumers in Debt?
Sometimes referred to as ‘lawsuit loans,’ funds given by third-party legal funders are not loans at all. Loans are paid back, typically with interest, regardless of what happens with the money once it’s provided. Legal funding is offered on a non-recourse basis, so funders get nothing if the cases they choose aren’t successful. When they are, funders may take what some describe as the lion’s share of an award.
National Law Review explains that the legal funding industry is only about two decades old. But it’s recently come barreling into the mainstream. Economic instability exacerbated by COVID led investors to seek out alternative, uncorrelated assets. Understanding the basics of litigation funding is a good idea for any personal injury lawyer.
First, funding requires that a lawsuit be filed. Funders vet cases according to their own guidelines and analytics to determine the best candidates for funding. Funded cases are typically those with a probability for a high payout, and defendants that have suffered significant personal or financial damages.
Plaintiffs may also be given an advance to tide them over while they wait for their case to conclude. Clients may use the advanced monies in any way they see fit. The timetable for this can be unpredictable, with duration risk being a major consideration for funders, lawyers, and clients alike.
The application process can take 1-7 business days to complete. For complex or high-value cases, the vetting process may last even longer. Underwriters will examine discovery, filed paperwork, deposition transcripts, and anything else they may require to determine whether a case has viability for funding.
Along with collective actions, personal injury cases are a commonly funded case type. Other common litigation types include medical malpractice, discrimination, whistleblower actions, and product liability. Litigation funding transactions are still largely unregulated—though that is expected to change.
