2/22/2011
Various banks and hedge funds have poured money on different lawsuits in order to create potential profits for them. However, this poses a great risk to borrowers. In fact, critics of said practice have considered these lawsuit loans as loan sharking, but in a legal way.
In most states, these lawsuit loans are unregulated. Banks, and other financial institutions that engage in such practice, have a freehand when it comes to interest rates that they charge, and often are very high. Companies are not even required to give complete information on pricing to borrowers. On the other hand, the companies argue that lawsuit loans must not be regulated since they will be getting nothing in the event that the case loses. If the plaintiffs, or the borrowers, would win the case, then they would be getting a portion of the settlement, and the rest will be paid to the lenders.
Most of the times, in just a matter of two years, the debt of plaintiffs to lenders have already doubled the original loaned amount.
In Georgia for instance, Larry Long, one of the plaintiffs in a class action suit against the drug maker of the pain medicine Vioxx, borrowed approximately $9,000 from a financing company. When he received his first settlement of $27,000 18 months later, he already owed the company roughly $23,000.
Mr. Long is one of those borrowers, who have paid a large portion out of the settlement they received to lenders. At current time, in a single year, the lawsuit loans industry lends $100 million to plaintiffs.
