When a patient is injured by medical malpractice, it’s like a bomb going off in their life with a wide blast radius. Medical bills pile up, the mortgage falls behind, creditors pester with phone calls. And the victim often faces months or even years of litigation before any hope of a financial recovery from the responsible party. In these dire circumstances, malpractice victims often look to lawsuit lending companies to borrow the money they need to make ends meet. Such companies loan money to injured people , who in turn promise to pay them back from the proceeds from their settlement or recovery after a verdict. These are generally “non-recourse” loans where nothing is owed if the lawsuit is unsuccessful. But there is a catch. Law suit loan companies will freely loan money to malpractice victims, but the repayment terms are often shocking with extremely high effective interest rates. Are these high interest loans legal?
In Georgia the answer is a clear “yes,” following a recent Georgia Supreme decision that examined the issue. In Ruth v. Cherokee Funding, the Supreme Court held the cash advances are not true loans so as to bring them under Georgia’s laws prohibiting loans with excessive interest rates. The Court found that due to the speculative nature of the transactions and the very real risk to lenders of not recovering their cash advances, the loans are more accurately considered “investments” rather than loans. Whatever they are called, are they a good idea for plaintiffs? The short answer is: it depends.
In truly desperate situations, where a $5000 or $10,000 loan can mean keeping the mortgage paid and food on the table, lawsuit lenders provide a critical service. Yes, the companies may receive double their money if the case resolves (or more), given the time value of money and the immediacy of the need, it still may be the right decision. A word of caution, however. There is great variability among the companies, and some are simply better than others with their repayment terms and, critically, the interest charged. Also, many companies will negotiate the final payment amount once a case does settle. The plaintiff’s lawyer must help explain the terms of the agreements, discuss the pros and cons, look for alternatives where available and as always, look out for their client’s best interest.