Settlement Advance Loans, Personal Injury Loans, Pre-Settlement Funding. All these names are synonymous and describe services offered by lenders to desperate personal-injury victims who are in need of cash. The loans are secured by any eventual recovery made by a personal-injury claimant.
These loan companies charge extremely (almost criminally) high interest rates which will dramatically reduce (if not completely eliminate) the amount of money we can put into our client’s pocket.
In addition, there is a risk to the attorney-client privilege. These companies will request certain medical and case information so they can determine whether or not to approve the loan. This information is usually protected by the attorney-client privilege. But it is the client, not the attorney, who holds this privilege; so it can be waived if the client distributes otherwise protected information.
Injury claims can take a long time to resolve. By obtaining a pre-settlement funding loan, our ability to make a recovery is hindered because the amount of interest paid is always incredibly high, so the amount owed on these personal-injury loans increases rapidly. The amount owed on the settlement can even rise to the point where the value of the case is less than the loan!
Even if this does not happen, prior clients who have obtained these loans (always against our advice) inevitably complain that they are not getting as much money as they initially expected (because they did not realize how quickly their loan would inflate before settlement or verdict). They will then ask us to reduce our fee. We will not. I will have the very difficult conversation and remind the client (armed with a letter we have them sign, acklowledging that we have explaining the many drawbacks of obtaining these types of loans) that they went ahead and obtained the pre-settlement loan despite our warnings.
An injury can be financially devastating. These loans should never be used unless under the most dire of circumstances.