Contingency lawyers – Contingency "loans?"

Many plaintiffs’ lawyers work for a contingency fee. If you hire one, it means that if you lose your case, you do not pay your lawyer anything. However, if you win your case, the lawyer gets a significant percentage of your recovery.

This type of fee arrangement helps people of limited means obtain representation. Most of us could not afford to pay an attorney an hourly rate to handle our claim. Sure, the lawyer’s cut of the proceeds can be high, but sometimes they work just as hard in a losing effort, and get nothing.

HB 873 – the Maryland Civil Litigation Funding Act – takes this concept a step further. It allows people to receive "funding" in return for paying back the company once the case has been settled or won. Supporters note that, especially when an accident leaves you unable to work, you still need to pay your bills. Why not obtain advanced funding to pay today’s bills in return for a lien against your future settlement?

Believe it or not, there are companies in business that specialize in these unusual transactions. They give you money, and if you win or settle your case they recover that amount, plus a fee from your award. Like with contingency fee lawyers, if you don’t win your case, you owe them nothing on your "loan." I put "" around loan, because technically these transactions are not loans, and are not regulated like other lending activity. They are just "fees." I put "" around fees because they really are interest, despite the technicality.

The "fees" on these transactions are very high. If you accept $10,000 from them and your case settles two years and one day later, you owe them $30,000. Even if your case is resolved favorably in only one month, that $10,000 "loan" you got will cost you $14,500 when your case settles.

Consumer advocates worry about these "fees." They note that while they are not technically "interest," the "fees" are huge. In fact, they are often well over 100%. Desperate people, they testified, make bad choices.

Insurance carriers raise a different fear. If your case is worth $30,000, and you get a funding advance of $10,000, they note that two years later the entire settlement amount would be owed to the funding company. This, they say, will result in plaintiffs refusing to settle their case unless extra money is added. After all, why not gamble on a higher award at trial – since if you win you get extra money, and if you lose, you don’t have to pay back the "loan." This will increase insurance costs, they argue, for all of us.

Both sides might have valid points. Injured people may need money to pay their bills. The cost of these funds, however, rightly makes people gasp. The result of the "loan" may force more trials or higher settlements.

Aren’t you glad you are not an elected official?