How to Tell If a Settlement Advance Company is Trustworthy

There are many legitimate, trustworthy, ethical lawsuit lending companies available – but there are also a lot of sketchy companies in operation. If you want to boost client confidence, ease their financial distress, and ultimately secure better ratings and reviews for your law firm, it’s important to sort out the scammers – and eventually find a settlement advance company you feel confident recommending to your clients.

An Introduction to Settlement Advances

In case you aren’t familiar, settlement advances are a financial product designed to alleviate the financial burden of pending lawsuits for plaintiffs. If a plaintiff is waiting to receive a settlement, they can apply for a settlement advance (also known as a lawsuit loan or pre-settlement funding). If approved, they get a lump sum of money in a day or two, which they can use in any way they choose.

Once the case resolves, they’ll pay back the loan, plus any fees. A settlement advance should also be non-recourse, meaning your client will owe nothing if no settlement is won.

Why Are Settlement Advance Companies a Concern?

Why are settlement advance companies such a concern? Part of the problem is the lack of regulation in the settlement advance world; settlement loans aren’t subject to the same level of control and scrutiny that conventional bank loans are, so settlement lenders can get away with more. Plaintiffs are also a vulnerable population, and unethical settlement lenders are eager to exploit them.

There are two main items to watch out for when researching settlement advance providers:

  • High interest rates. Some settlement lenders intentionally charge compounding interest rates and complicate this practice as much as possible by hiding or distorting their fee structures. Low interest rates aren’t much of a problem, but with compounding, high interest rates, borrowers can quickly end up underwater – owing much more than they originally borrowed.
  • Predatory terms and conditions. Predatory lending comes in many forms, and there are many ways that settlement lenders can manipulate their audience. Misleading terms and conditions, unclear terminology, and hidden fees are just some of the ways a malicious actor could take advantage of their audience.

Why should you care?

  • Client financial issues. Your client's financial situation is important to your case.  You, as well as your clients should feel good about the settlement loan they are getting. If you recommend a sketchy provider, your client's opinion of your firm could be at risk.
  • Complicated legal issues. In some situations, you may be held legally responsible for your actions. For example, if you take a commission for referring your client to a predatory lender, you could become embroiled in a serious legal conflict.  Legal funding companies should never offer to provide a referral fee or kick-back to a law firm or attorney.  This is a major red flag.
  • Reputation issues. Your recommendation is going to reflect on you and your firm. Suggesting an unethical or unreliable settlement lender could ruin your name for years to come.

Red Flags to Watch for: How to Tell If a Settlement Advance Provider is Legit

So how can you tell if a settlement advance offer is a scam?

  • Unclear or unavailable terms. Do some online research or contact the settlement advance provider directly. Try to find out what the fee structure is and what the terms and conditions of the loan are. If these terms aren’t clear, or if they’re completely unavailable, you have cause for concern.
  • Interest rates (especially high interest rates). The best type of fee structure for your client is a fixed fee, rather than an interest rate. An interest rate shouldn’t be considered a dealbreaker, but high interest rates should prompt you to look elsewhere.
  • Ratings and reviews. An easy step to take in your due diligence is to look up customer ratings and reviews. How have previous plaintiff borrowers felt about their experience with this company?
  • Recourse loans. Does this settlement advance provider offer non-recourse lending? Even if you’re totally confident in your ability to win the case, you shouldn’t volunteer your client for a loan that needs to be paid back even if they don’t win a settlement.
  • Poor or nonexistent communication. Have you had much communication with this company? Are their agents easy to reach? Are team members eager and willing to answer your questions or is communication exceedingly difficult or confusing?

Finding the Right Settlement Advance Provider

Finding the right settlement advance provider is important.  And with the proper due diligence, you can detect and avoid sketchy companies and ultimately refer your clients to a settlement advance provider you both can trust. We're here to help you on that journey. Contact Capital Now Funding today to learn more about our pre-settlement funding and how we can support your clients.