At Tribeca Lawsuit Loans, we have long favored sensible reforms and well-considered legislation governing consumer litigation funding. New York State Assembly Bill No. A03315, the New York Consumer Litigation Funding Act, is the kind of action our industry needs.
Also known as consumer legal funding, lawsuit loans, and pre-settlement funding, consumer litigation funding finances plaintiffs as they seek justice in civil court. While still a young industry, consumer legal funding has grown tremendously over the past 10-15 years. The need for pre-settlement financing in our society is profound, and those who avail themselves of it are often desperate. Unfortunately, without sensible legislation regulating this fledgling industry, the opportunities for abuse abound.
But exactly what is consumer litigation funding, and why is it so important for our society? And what is the New York Consumer Litigation Funding Act currently under consideration in the New York state assembly? Let’s investigate each of these questions, taking a good look at consumer legal funding in action.
“At least with legal funding, we are given options.” — Derrick Hamilton
What is Consumer Litigation Funding?
In the United States, when a person is harmed through the non-criminal actions of another, the injured party can sue for financial compensation. This is the system we have set up to enable the victim of a car accident, a defective medical device, or another harmful incident to be “made whole.” A wide range of civil cases involve injuries, loss of employment, and property destruction that can be extremely expensive. So, our laws provide civil litigation as the method for recompensing one person who has been damaged by another.
Unlike many other countries, in the U.S., the financial cost of pursuing civil litigation falls entirely on the litigants. So the injured party, or the plaintiff, must pay for the costs of suing, including attorney’s fees and out-of-pocket expenses. At the same time, they must handle the medical expenses and repair costs resulting from the harmful interaction while continuing to pay their regular bills. This means that litigation is often far too expensive for some people to pursue, while others afford it easily. Yet accidents, dog bites, slips and falls, defective products, and unfair employment practices can affect and damage anyone.
Consumer litigation funding acts as a cash advance on a plaintiff’s future monetary settlement. That’s why it is also called pre-settlement funding or a pre-settlement loan. The money can be used to pay for medical treatment, property repairs, or everyday expenses like rent, food, or gas. The funding is structured as a non-recourse loan, meaning the sole source of money for the loan’s repayment is the collateral —the lawsuit’s final settlement package. Like with contingency fee-based attorneys, if the plaintiff does not win their case, the consumer litigation funding provider does not get paid.
“Without the pre-settlement advance, I would have settled my case for much less than my settlement award.” — Derrick Hamilton
Why is Consumer Litigation Funding Important?
Civil litigation is the system all Americans must use to gain compensation when civil injuries occur, yet far too many simply cannot afford it. According to a poll reported by CNBC.com (4/5/2022):
- 20% of working Americans run out of money between paychecks
- 68% have no money set aside for emergencies
- 51% have absolutely no emergency savings
As inflation persists, the difficulty of affording litigation becomes even more extreme.
America reveres the Rule of Law. But how fair can the system be if over one-fifth of the population cannot afford to sue for their rights in the only system provided?
Consumer litigation funding is necessary because democracy cannot survive if a significant portion of the populace cannot participate in the civil justice system. It makes the entire civil justice system more accessible and fair. Not only do lawsuit loans enable individual plaintiffs to access justice that would otherwise be beyond their reach, but they do a better job holding corporations and big money interests accountable for their actions. It’s unfortunate, but sometimes the only way to get people in power to enact meaningful policy changes is to find expensive civil judgment against them.
“You get out to make the choice to get a loan and support your family.” — Derrick Hamilton
How Does Civil Litigation Funding Work?
To explain how civil litigation funding works, we’ll use a simplified example.
Let’s say Ray harms John, and the damages reach six figures. Ray might offer a few thousand dollars, “and we’ll forget the whole thing.” However, John wants compensation in line with the damages he has suffered, so he sues Ray. John’s litigation attorney estimates the value of his case at $300,000. John’s lawyer and Ray’s conduct discovery and investigate the issue fully. All the evidence points to Ray’s liability. If we could end the story here, there might be no need for consumer litigation funding.
Unfortunately, at this point, Ray’s attorney and his insurance company employ a strategy to protect him (and his insurance company) from paying the amount he owes — they delay and postpone, dragging out the legal proceedings for years. This stalling tactic is designed to leverage John’s mounting debt and financial stress against him.
Then, they offer a small fraction of the case’s worth, maybe $75,000, hoping that his circumstances will force him to accept the lowball offer. Meanwhile, John’s missing work for expensive medical procedures and physical therapy, and his bills are piling up. If John has no emergency savings, he will either have to accept this offer as his total compensation or find consumer litigation financing.
With consumer litigation funding, John can pay his medical bills, become current on his other financial obligations, and replace his lost income. In the meantime, thanks to the lawsuit loan, he can now afford to wait for his lawsuit to resolve at the full compensation his case is worth.
“Most guys settle because they need the money now. Lawsuit pre-settlement advances level the playing field.” — Derrick Hamilton
New York Consumer Legal Funding in Action
Ray and John serve as a hypothetical. Now let’s see how New York consumer legal funding works in the real world.
Derrick Hamilton, a New York resident, was arrested, convicted, and imprisoned for a crime he did not commit in 1989. For 23 years, he fought his conviction, claiming that the police in New York City and New Haven, Connecticut, had manufactured evidence and suborned perjury in his case. After more than two decades of work behind bars, he successfully overturned his conviction.
Sadly, what should have been a happy ending was just the start of a new set of obstacles and challenges. This man, who was locked away before personal computing was widespread, and smartphones even created, was released into poverty with no job skills and just a few bucks in “gate money.” Exonerees like Derrick face a long, uphill climb with no resources beyond their family and friends.
To summarize a long and painful battle, after being exonerated and released from prison, Dereck was forced to prove to the State of New York that he was actually innocent of the crime and not just “not guilty.” This required extensive research, witness interviews, depositions, and investigation of the officers who arrested and built a case against him. All this work was on his own dime, and it was required before he could sue for the financial compensation he deserved for 23 years of wrongful imprisonment.
In the end, the state released Derrick Hamilton and then exonerated him. Yet the cities of New York and New Haven continued to delay his compensation for his time in prison. Their attorneys and insurance representatives worked hard to shield the cities from the repercussions of police misconduct and to prevent paying the recompense Mr. Hamilton deserved. Without consumer legal funding from Tribeca, he would have been forced to settle for mere pennies on the dollar.
“The funds provided had an extremely positive effect on my life. When released from prison, you are thrown into poverty. You have nothing, not a penny. Legal Funding alleviated my desperation,” — Derrick Hamilton.
First, upon receiving consumer legal funding in New York, Derrick Hamilton opened a restaurant in Brooklyn, where he employed another exoneree and family. Then, when he finally settled with New Haven and New York City for $7 million, he launched a firm with other exonerees. Together, they fight for the rights of other wrongfully incarcerated people, working to secure their release from prison.
“I work with 3 guys who were exonerated. If it wasn’t for the loan, they would still be sleeping on mattresses on the street.” — Derrick Hamilton
What is the New York Consumer Litigation Funding Act
We believe consumer litigation funding is essential to our society. It makes our civil justice system more accessible to more people, making it more fair. As we have seen in Derrick Hamilton’s case, legal funding gives the weak and the poor the financial wherewithal to take on the powerful to fight for their rights.
This industry is deserving of protection, and we believe legislation like the New York Consumer Litigation Funding Act does just that. This bill mandates minimum disclosure requirements for the lender to ensure the consumer fully understands how the cash advance will be repaid, the fees, and the interest the lender charges. The litigation attorney must sign off on the funding and agree to disburse the funds from the compensation package. And it empowers the consumer to change their mind, cancel the contract, and return the money.
The consumer litigation funding industry needs sensible regulation like the New York Consumer Litigation Funding Act. It is essential for protecting consumers from the predatory lenders and bad actors attracted to the industry. Additionally, the industry itself must be protected from those powerful concerns that would outlaw legal funding entirely.
Tribeca Lawsuit Loans provides consumer litigation funding in the United States. Visit our Apply Now page, or feel free to ask any questions. Contact us online or call us at (866) 388-2288. We look forward to aiding you in your fight for justice.