Why is There an Assault on the Poorest Amongst Us?

“Millions of Americans Are Just 1 Paycheck Away From ‘Financial Disaster’” was the title in a recent story in Barron’s. The article stated that 51% of working adults in the US would need to access savings to cover necessities if they missed more than one paycheck. That is the equivalent of over 78.2 million Americans.

The story went on to state that roughly two-thirds of households earning less than $30,000 annually and Hispanic households would not be able to cover basic living expenses. That is the equivalent of over 101.2 million Americans.

Consumer Legal Funding is a vital resource for those very Americans. Funding allows the 101.2 million Americans who cannot cover basic living expenses to bridge that gap while their legal claims make their way through the system. With some cases taking several months – if not years – to settle, these Americans need help today. Consumer Legal Funding allows them to pay their mortgages, put food on their tables and keep a roof over their heads while the Insurance industry slow-walks their legal claims.

Perhaps the most chilling revelation here is that the Insurance industry, led by the US Chamber of Commerce, supported legislation to eliminate Consumer Legal Funding in two of the top-10 poorest states in the country: first in Arkansas, where 15.4% of the population lives in poverty, and just last week in West Virginia, where the poverty rate is 17.7%. What is even more striking, is that those are two of the top-10 hungriest states in the US. In West Virginia, 14.9% of the population goes hungry, and in Arkansas the rate is 17.4%. The elimination of Consumer Legal Funding in these two states was implemented merely to increase Insurance industry profits, and force consumers to accept lowball offers (as an aside: State Farm ended 2018 with a net worth of over $100 Billion).

Thanks to the latest legislation that went into effect on June 5, 2019 in West Virginia, residents who need Consumer Legal Funding assistance will no longer be able to access it. Take for example, Patressa from Barboursville, WV, who said: “I am completely broke financially due to a car accident. I have medical needs and doctor appointments that I need to go to.” Now Patressa is among the 1.8 million residents of West Virginia who no longer have access to alternative funds while their cases are pending in the legal system. As a result, Patressa will be forced to accept an offer for less than what she deserves.

One of the most heartbreaking responses to the recent legislation comes from Victoria of Clarksburg, WV, who stated quite candidly that she “needed the money so I could have a place to live.” Who can the 4.8 million Patressa’s and Victoria’s of West Virginia and Arkansas turn to for help? How will they meet their medical needs? How will they find a place to live?

Looking ahead in 2019

As the 2019 Legislative Session begins, we want to take a look at what is the best way to regulate Consumer Legal Funding. Over the past few years, the states have introduced several pieces of legislation with the aim of regulating Consumer Legal Funding. Rather than simply introduce capricious regulations, legislators should familiarize themselves both with the product, and the consumers who need it, before making rash decisions that will impact their constituents for life.

For example, according to CNBC, 78% of full-time workers said they live paycheck to paycheck, up from 75% last year. In addition, 56% of those polled said they were in over their heads with debt and save less than $100 per month for emergencies. Even for those making over $100,000, nearly 10% live paycheck to paycheck, and 59% in that salary range claim to be in the red.

That is why Consumer Legal Funding is so important. When an unexpected tragedy hits, and consumers lack the financial resources to make ends meet while their claim is dragging out, Consumer Legal makes its way through the legal process.

Consumer Legal Funding assists consumers like Jack Daniels from Phoenix, who stated: My budget was already tight, and the injury made things much worse.” Consumer Legal Funding allows consumers like Jack to receive the fair and just settlement they deserve, as opposed to one they are forced to accept just because they are living paycheck to paycheck.

ARC supports proper regulation of the industry like those that have been enacted in Ohio, Maine, Vermont, Oklahoma and Nebraska. What we unequivocally do not support are severe restrictions that have been imposed on the industry, which prohibit the product from being offered. For example, in Arkansas, Consumer Legal Funding is no longer available because of the restrictions that were imposed by the Arkansas legislature in 2015.

We welcome any and all legislators to reach out to us to help properly regulate this important product that allows consumers to keep a roof over their heads and food on the table while their legal claim is in process. As Cathy from Hannibal, Missouri states, “[Consumer Legal Funding] kept me from being homeless.”

Balanced Bridge Funding: The Newest Addition to the ARC Family

The Alliance for Responsible Consumer Legal Funding (“ARC”) is pleased to announce that Balanced Bridge Funding (“Balanced Bridge”) has joined ARC as its newest member.

Joseph Genovesi, Chief Executive Officer of Balanced Bridge, said “We are looking forward to joining ARC and the rest of the ARC members. We believe the organization brings a wealth of value to our company, as well as to the consumer legal funding industry as a whole.”

Rob Johnson, Executive Director of ARC, had this to say: “Balanced Bridge is a major player in the specialty finance and legal funding spaces, and we welcome them to the ARC Family.”

Balanced Bridge specializes in post-settlement advances to both plaintiffs’ attorneys and their clientele. They also offer a law firm line of credit, voucher funding for public defenders, and a first year attorney funding product for brand new lawyers just starting their careers.

Outside the legal funding space, Balanced Bridge provides real estate commission advances, professional athlete funding, fix and flip real estate loans, and government contract advances, among other specialty finance solutions.

The vast majority of consumer legal funding companies focus on pre-settlement funding, as this is where the demand primarily lies. “Although Balanced Bridge only offers post-settlement advances, we strongly believe in ARC’s industry best practices,” said Genovesi. “ARC is without a doubt part of the solution for the consumer legal finance industry, and we’re proud to officially join the ARC Family.”

Cookie Cutter Approach?

 

In a recent article in Property Casualty 360 titled “Risk-based pricing remains the best option for consumers”, the leading advocate for the Property Causality Insurance industry stated that the best option for consumers is to have their insurance rates based on the probability that they will have an insurance claim, i.e. “Risk-Based Pricing”, and not on other factors such as income, race, gender, address, ethnic group, religion, marital status or nationality when determining their insurance scoring. We couldn’t agree more!

What is really interesting is this same group – The Property Casualty Insurers Association of America – are the ones leading the charge with state legislators across the country when it comes to capping the rates on what Consumer Legal Funding companies are able to charge, a measure that would either limit or fully eliminate the product.

They want the industry to follow a cookie cutter approach when it comes to addressing and pricing legal claims, but when it comes to their own product, auto insurance, they want to maintain the capability of pricing based on the probability of outcome, as opposed to a cookie cutter methodology.

Consumer Legal Funding companies NEVER take into consideration income, race, gender, address, ethnic group, religion, marital status or nationality when determining what is the best approach when approving funding for a consumer. They look at the validity of the legal claim and the probability of there being a positive outcome; the same way insurance companies determines the premium that consumers pay each month on their insurance bill.

So we ask again, why is it ok for the insurance industry to take risk into consideration and not the Consumer Legal Funding industry?

The article goes on to state that “Vermont enacted legislation this year with balanced measures to protect consumers and reinforce the risk-based insurance system.” In 2017, Vermont enacted legislation that also regulates Consumer Legal Funding. That piece of legislation clearly states that the consumer MUST be fully informed as to the charges, and that there can be no hidden cost associated with the product that the consumer is not fully aware of. In other words, full transparency to the consumer. No cookie cutter or one-size-fits-all approach.

We fully support the bill that was passed in Vermont.

Perhaps state legislators should give closer inspection to Vermont’s position with regard to the insurance industry, and apply those same principles to Consumer Legal Funding. A risk-based pricing model is indeed one that we should all fully support.

 

New Addition to the ARC Family

The Alliance for Responsible Consumer Legal Funding (ARC) is pleased to announce that Global Financial Credit, LLC (www.glofin.com) has joined ARC as it newest senior board member.

Wensley McKenney, a founding partner of Global Financial Credit, LLC, said “We are pleased to be joining ARC and the rest of their members. We feel that the values and vision for the industry are well aligned with those of Global.”

“Global brings a wealth of knowledge and experience in the Consumer Legal Funding space and we look forward to working with them.” Stated Rob Johnson, Executive Director of ARC.

Why Do Ticket Resellers and Consumer Legal Funders Exist? Because Springsteen Cares and “XYZ Insurance” Doesn’t

I buy a ticket to see Bruce Springsteen for $150 and then resell it for $350. Why am I able to do this? Because the face value of a Springsteen ticket is artificially low. Bruce could set a higher price, but chooses not to. It’s a noble yet futile effort on his part to go easy on his fans. I say “futile” because ultimately the market will adjust the price to reflect its true value. As long as there are folks lining up to pay considerably more than face value, third party ticket resellers will remain incentivized to take advantage of the economic opportunity presented therein.

So what about “XYZ Insurance Company”?

Say I’m involved in a car accident where the at-fault driver is insured by “XYZ Insurance.” I make a claim against “XYZ Insurance” to recover for the injuries I’ve suffered in the accident. Reasonable minds agree that my claim is worth between $25K-$35K. However, “XYZ Insurance” offers to settle (“buy”) my claim for only $15K.

Like Springsteen, “XYZ Insurance” is setting an artificially low price, albeit for very different reasons, and thereby creating an economic opportunity for a third party – in this instance a Consumer Legal Funder. Keep in mind, even though “XYZ Insurance” is technically a buyer in this scenario, for much of its history it has been the only possible buyer. As such, it has enjoyed monopoly-like power in terms of price-setting; that is, until the advent of Consumer Legal Funding.

If “XYZ Insurance” objects to the rise of Consumer Legal Funding, it’s because funders have created a market for claims where none previously existed. Think about that. In this new market, “XYZ Insurance” faces competition. That’s good for consumers. It means claimants now stand a much greater chance of realizing the true value of their claims. Absent Consumer Legal Funding, the only buyer of a claim against “XYZ Insurance” is … “XYZ Insurance.”

A market of one is no market at all. Fortunately, Consumer Legal Funding helps establish a robust market, without which, we all suffer.

Dean Lipson

Covered Bridge

 

 

Why You Can’t Trust The New York Post’s Recent Reporting Of The Litigation Funding Industry

 

Over the last several months, the New York Post has run a number of articles shining a light on the darker side of the litigation funding industry. The Post is right to expose business practices that lack legitimacy but the Post’s reporting is lacking in its own right. Where’s the balance, I ask rhetorically? It’s clear the Post is less concerned about telling the whole truth than it is about “reporting” whatever is likely to sell papers.* Stoking fear and anger will energize a base (and sell more papers) but it will also hurt a lot of folks in the process. As I write, the New York State legislature is considering competing bills that would either reasonably regulate the litigation funding industry in New York or effectively shut it down. Given the Post’s large readership and its one-sided attack of the industry, it’s possible that some, if not many, legislators will be persuaded to vote in favor of unreasonable regulation. If that were to happen, the playing field would once again tilt heavily in favor of the insurance industry. That would do a terrible disservice to the many thousands of people injured in New York every year who may need litigation funding as a resource of last resort.

The New York Post is not unique in its negative and distorted reporting of the litigation funding industry. Plenty of others have been quick to trot out their moral compasses and warn us of the industry’s evil ways. But, there’s a danger in doing this. As Steven Levitt and Stephen Dubner write in their book, Think Like a Freak:

“[…] when it comes to solving problems, one of the best ways to start is by putting away your moral compass. Why? When you are consumed with the rightness or wrongness of a given issue – whether it’s fracking or gun control or genetically engineered food – it’s easy to lose track of what the issue actually is. A moral compass can convince you that all the answers are obvious (even when they’re not); that there is a bright line between right and wrong (when often there isn’t); and, worst, that you are certain you already know everything you need to know about a subject so you stop trying to learn more”. pp. 31-32

The New York Post stopped. Maybe it refused to put down its moral compass or maybe it only cared about stoking the anger it knew would lead to increased readership and ultimately increased profits. You can draw your own conclusion. As I wrote above, I think the Post is right to shine a light on the darker side of the litigation funding industry and it’s not wrong for readers to get mad but, as Steve Forbes likes to say, with all they getting, get understanding. Regrettably, readers aren’t getting that from the New York Post.

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*Read what a former New York Post reporter has to say on this subject: https://webcache.googleusercontent.com/search?q=cache:zd962rHcgL8J:https://www.cjr.org/first_person/new-york-post-reporting-lessons.php+&cd=11&hl=en&ct=clnk&gl=us

 

Dean Lipson

Partner

Covered Bridge Capital, LLC

ARC Member

New York State Senate to Hold Hearing on Consumer Legal Funding Industry

On May 16th, 2018 the New York Senate Standing Committee on Consumer Protection will take up the issue of Consumer Legal Funding or Lawsuit Lending as it is posted in the Committee Calendar. This is an important issue for the consumers of New York in that it could aid in determining how the State of New York will regulate the Consumer Legal Funding industry in the future.

At issue here is the best possible approach.

The Senate has a bill – S3911 – that attempts to regulate Consumer Legal Funding transactions as loans, and subjects the industry to the usury statute. The problem with that approach is that this product is not a loan, it is a purchase of an asset.  Courts around the country have stated it is not a loan, including in Georgia and even New York in the RJC Funding case. In fact no state has classified this product as a loan in statute, as was illustrated in our recent brief on the topic in Georgia.

We feel that the best way to regulate this industry is the way the Assembly is with bill A8966. His legislation is similar to legislation that has passed in several states, such as Oklahoma, Nebraska, Ohio, Vermont and Maine, where the consumer knows EXACTLY what the terms and conditions are in the contract. They are given clear notice and disclosure, with nothing hidden. This type of regulation allows the industry to survive and aid consumers in their time of need.

There have been issues within the industry which the media has sensationalized of late, but there is a clear difference in the pieces of legislation now being proposed. The Senates bill will do one thing: eliminate the industry from the State of New York, and harm all of the consumers who rely on it, as illustrated by the consumer comments found here. Whereas the bill in the Assembly will bring stability to the industry, give consumers a clear path to understanding the transaction, allow them to understand the terms and conditions from day one, and allow the industry to function while eliminating the issues brought up by the media.

So the New York Legislature has two choices before it: abolish a product that provides consumers the ability to attain a fair and equitable settlement, or pass legislation that protects consumers and allows this vital product to be there for consumers like Tallulah from St Albans, who said: “I needed the money to pay for prescriptions and transportation fees – additional costs I incurred because of the car accident.”

So the New York Legislature has two choices before it: abolish a product that provides consumers the ability to attain a fair and equitable settlement, or pass legislation that protects consumers and allows this vital product to be there for consumers like Tallulah from St Albans, who said: “I needed the money to pay for prescriptions and transportation fees – additional costs I incurred because of the car accident.”

We hope the New York Legislature makes the right choice for the constituents they represent.

Eric Schuller
President
Alliance for Responsible Consumer Legal Funding

Consumer Legal Funding can help with unexpected funeral expenses

A drunk headed the wrong way on the freeway, collides head-on with a 38-year-old mother of three. The drunk driver survives, but the woman dies instantly. Her grieving husband, faced with raising three kids on his own, must now also worry about paying for his wife’s funeral costs. Since he doesn’t have the more than $10,000 needed to cover her burial expenses, he charges everything on his credit cards and decides he will worry about how to pay for it later. Yet, unable to bring himself to return to work, the bills quickly pile up.

Worst-Case Scenario. Through no fault of his own, the husband is facing his worst-case scenario—a life without his wife, an inability to work and mounting debt. But since his lawsuit against the drunk driver’s insurance company is solid, it gives him an option he didn’t know he had. He can receive Consumer Legal Funding based on the value of his lawsuit through a Consumer Legal Funding company. The money can be used to pay bills while waiting for the case to conclude.

The husband will not have to pay back the funding until the case settles. This funding enables him time to grieve and regroup without worrying about the costs of the funeral.

Consumer Legal Funding Advantages. Consumer Legal Fundings are not loans. They are non-recourse monetary fundings. Since Consumer Legal Funding is based on the strength of the plaintiff’s case, no loan approval is necessary. That means funds can be wired to the injured plaintiff within hours after the funding company receives the plaintiff’s completed online form. And again, since it’s not a loan, if the plaintiff’s case does not prevail, the funds do not have to be repaid.

Ramtin Ghaneeian

Rockpoint Legal Funding

 

Let Us Have a Free Market (Except When it Comes to Consumer Legal Funding!)

President Andrew Jackson once said “The duty of government is to leave commerce to its own capital and credit as well as all other branches of business, protecting all in their legal pursuits, granting exclusive privileges to none.” 

We agree.

What is amazing is that opponents of Consumer Legal Funding are trying to impose rate restrictions on the product for the sole purpose of limiting access for consumers and thereby constraining the Free Market.

Let me explain: The major opposition to Consumer Legal Funding is being driven by the US Chamber of Commerce and the Property and Causality Insurance industry. These are the same organizations that are advocating for Free Market solutions when it comes to pricing of their products. When it comes to their members and the larger insurance industry, they state unequivocally that the Free Market should regulate prices, and not federal or state governments. On the issue of broadband internet speed, the US Chamber was supportive of letting the market determine the final outcome, as outlined in one of their blogs. When the Chamber warned of price controls to the US Senate, it stated: The Chamber opposes “price controls” of any sort that involve government intervention in the free market, whether by direct government purchase and distribution of products or by less direct means.”

Tom Donohue, the US Chamber of Commerce President is quoted as saying, “We have got to go out in a big-time way and remind all Americans that it was a free enterprise system based on the values of individual initiative, hard work, risk innovation and profit which built our great country.”

So again, why does a Free Market solution work for the members of the Chamber of Commerce and the insurance industry, but not applicable to Consumer Legal Funding? The answer is simple: Consumer Legal Funding allows consumers who are being dragged through a legal claim for months – or even years – the ability to hang on and get the fair and just settlement that they deserve, as opposed to a settlement they are forced to acquiesce to, due to being in a financial bind.

The Free Market shouldn’t only apply to those who can afford it.