Litigation Loans

After people get hurt money can be tight. Especially if they’re missing work and/or have significant medical expenses that aren’t covered by insurance.

There are finance companies that make loans to people with personal injury claims.

The loans are “non-recourse.” That means that if the injured person doesn’t win their case, they don’t have to pay back the loan.

That sounds good for the borrower. But what it really does is exempt the lender from usury laws. In other words, there’s no cap on the interest the lender can charge. The payoff amount can be 5X the amount of the loan by the end of the case.

I discourage most clients from getting litigation loans. Here’s why:

1. They’re a super-expensive way to borrow money.

2. The process of obtaining the loan/dealing with the lender consumes an outsized amount of my time and/or Sam’s time.

3. At the end of the case the clients feel like they’re not getting any money and that all of it’s going to our fees and paying back the lender. They’re bitter and want us to cut our fees.

Governments use taxes to affect social policy. There are big taxes on alcohol and tobacco because the government doesn’t want people smoking and drinking.

Interest on student loans and mortgages is deductible because education and home ownership are viewed as positives.

So that’s what we do. We charge a tax.

Interfacing with the lender consumes about half an hour of time on the front end and then another half an hour on the back end (in terms of obtaining payoff figures, etc.).

We have very few hourly cases. But there are several go-to sources to figure out what’s “reasonable” for attorney time. It’s called the Laffey Matrix. Based on experience Sam’s rate is $838/hour and mine is $1,141/hour.

So each time a client seeks a litigation loan there's going to be a $250 charge for interfacing on the front end (whether a loan is made or not) and $250 on the back end. (These flat fees are a bargain compared to the actual time expended.)

I don't want to be harsh. What I want to do is discourage clients from using their cases like extremely expensive ATMs unless it’s absolutely necessary. And if they do, they need to pay for the transactional cost it imposes. Nobody rides for free.