Unregulated, Unscrupulous Lawsuit Lenders Are Fleecing Vulnerable Californians
Consumers for Fair Legal Funding - California (CFLF-CA), is a statewide coalition working to stop predatory lawsuit lenders, who are targeting and taking advantage of vulnerable Californians, especially people of color. The absence of any regulations or guardrails on the practice has created a burgeoning industry where large investment firms take advantage of Californians who need financial assistance.
What Is Lawsuit Lending?
Lawsuit lending is known as “litigation funding,” “pre-settlement funding,” or even “car accident loans” and is the practice of loaning money to individuals while their case is pending. Individuals must pay those loans back with interest out of any settlement. Sometimes what they owe exceed the value of their settlement.
Because the industry is completely unregulated, lenders – often backed by deep-pocketed hedge funds or foreign investors – are able to charge ruinous interest rates as high as 100% or more.
Lawsuit lenders can provide a valuable service and life-saving financial support to those in need. CFLF-CA is NOT trying to shut down the industry, but rather to put much-needed guardrails in place to prevent unscrupulous lenders from taking advantage of Californians in need.
Litigation Funding: A multibillion-dollar industry for investments in lawsuits with little oversight
Is This Legal?
Almost all forms of lending are regulated – either at the state or federal level, or both –
but NOT lawsuit lending.
Litigation financiers skirt consumer protection laws by exploiting loopholes that enable lenders to classify their loans to clients as an “investment” or “non-recourse agreement” rather than a loan.
Who Is Most At Risk?
Individuals with strong legal cases who have no savings, no credit cards, and no financial safety nets are easy targets. Who falls in this category? Those most at risk of this predatory practice include exonerees, small business owners, unhoused individuals, immigrants, Californians with disabilities and others who live paycheck to paycheck, especially people of color.
California has been categorized as one of the four “most attractive states” for those looking to invest in the lawsuit lending industry.
The unregulated lawsuit lending industry also hurts businesses. Lawsuit lending fuels frivolous lawsuits and drives up payouts, experts say, disproportionately hurting small businesses, which operate on thin margins and can be bankrupted by one big settlement. The average household pays a $3,300 “tort tax” annually due these unnecessary and abusive lawsuits. Ultimately, that’s less money for businesses to grow, and for consumers to spend. As a result, lawsuit lending erodes profit margins, as businesses must set aside money for injury funds rather than investing in growth.
California Must Act NOW To Protect Consumers!
We cannot have a truly equitable and just state as long as this practice is allowed to continue unchecked.