Friday, January 28, 2011

Featured Article: "Betting on Justice" Part 3 NY Times

The first installment in the "Betting on Justice" series from the NY Times,  reported on the issue of banks and financiers loaning funds to plaintiffs' counsel to cover litigation expenses during the pendency of a case. The second installment reported on the financing of divorce actions. This third installment, "Lawsuit Loans Add New Risk For the Injured" features the practice of loaning money directly to plaintiffs in lawsuits. Apparently, the lenders characterize their practice as "investing" in the lawsuit and, therefore, avoid regualtions that apply to loans. The distinction is justified, they allege, because the plaintiff is not required to pay the money back if the lawsuit is unsuccessful. Therefore, the investments are particualrly risky and higher interest rates are justified.  According to the Times, those rates may exceed 100% annually - even when a settlement has already been reached and payment is pending, thereby eliminating the "risk."  When I came to the bar in the early '80s, it was impermissable for a lawyer to agree to finance a client's litigation. In a contingent fee case, the client had to agree to repay all expenses regardless of outcome. I know those rules have changed in many places.  However, leaving these investors unregulated would seem to allow them to reap unreasonably large gains at the expense of the weak and vulnerable. Wouldn't this practice fall within the definition of unconscionability?

Two of the companies referenced in article are LawCash and Oasis.  A Law Cash ad was featured in the blog post from Part 1 of the series. Below are more examples of ads from each:

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