The Danger of Using Credit Cards During a Legal Claim

Cycle of debt—three little words that strike fear in the hearts of every financially independent adult. It’s something that we all work hard to avoid. We all want to be Beyoncé when it comes to money.

Beyonce

 

But with 73% of us living paycheck-to-paycheck, it’s something that is oh so easy slip into.

Cycle of Debt

And a cycle of debt can be crippling, not only because of the continued bite it takes out of your paycheck, but because it can put you one illness, accident, or job loss away from badly damaged credit, collections, and even bankruptcy.

That’s why using a credit card can be so dangerous if you don’t have a guaranteed, steady, and robust income.

Here’s an example:

Say you take out a credit card with 26% interest and charge $2,000. If you make the standard 4% minimum payment—$80 every month—it will take you 10 years and 6 months to pay off in full.

Credit card payoff 1

Another example:

You have credit card with 36% interest and charge $2,000. If you make the standard 4% minimum payment—$80 every month—it will take you a whopping 17 years and 9 months to pay off in full.

Credit card payoff 2

Now, that’s IF you can make the monthly payments in full EVERY MONTH. Sometimes that is a hard thing to guarantee.

Accidents, for example, can cause injuries that can threaten a person’s ability to go to work and earn a living as they usually do. Some people just need time to recover, others need surgery. Still others are injured permanently and need to either change careers or are unable to work at all.

And being compensated after an accident can take time. The more severe the injuries, the longer an insurance or legal claim is likely to take to reach a settlement.

That leaves people in a bind, and unable to make ends meet.

Grumpy-Cat

According to a recent Harris Poll survey, 62% of Americans would struggle to meet BASIC HOUSEHOLD NEEDS without 3 months of income.

So what do you do? Put it on a credit card?

Maybe, but that can be very dangerous if you’ve been in an accident, are pursuing a legal claim, and don’t have regular income. One missed payment and can damage your credit and put you on the road to bankruptcy. People often take out loans to pay off other loans, creating a cycle of debt.

Bankruptcy

That’s why maintaining access to consumer legal funding is so important.

Consumer legal funding gives people a choice to replace lost income now by selling a small part of their future anticipated recovery. Because it’s a purchase, it doesn’t create debt, isn’t connected to consumer credit, and can never put someone in collections or bankruptcy.

There’s no monthly payment, which is great when there is no other income coming in. And all costs are spelled out in dollars and cents—no interest calculations. All payments come from the settlement, so if something goes wrong with a case, nothing has to be paid back—even the funding. Nothing.

It’s a product specifically designed to help people in this situation, and something that is much safer for consumers than putting expenses on credit cards.

People should have options to avoid cycles of debt. Consumer legal funding is one of those necessary options.

 

Source: Credit card payoff calculations made with Bankrate.com’s online calculator.

consumer legal funding

The Austin Lawyer: Hulk Hogan and Gawker Expose Many to Litigation Finance

In this can’t miss article, Texas attorney Eric Woomer talks about the highlights of a headline-grabbing year for litigation finance and breaks down the differences between litigation finance and consumer legal funding.

The big difference? “…the money goes to everyday people to meet basic living expenses, not to fund any litigation or pay legal bills.”

More from the article:

Funding is provided on a contingent basis, like with litigation finance, and can help plaintiffs see their day in court even if they don’t have oil money.

Most people who use it are pursuing a fair claim settlement from an insurance company after a car accident, and are out of work due to their injuries.  With 76% of Americans living paycheck to paycheck, many have found it hard make ends meet while letting the legal process work.

Professor Jeremy Kidd from Mercer University, one of the ARC Advisory Council members is referenced:

Some critics will rail against all legal finance resources alleging that funding of cases will increase litigation, encourage frivolous lawsuits, and hurt the economy. Yet, these assertions conflict heavily with Kidd’s 2015 research.  Regarding consumer legal funding, Kidd concluded that “when legitimate claims are brought and justice served, it can actually benefit the economy by deterring bad and inefficient behavior.”

Read the article HERE (page 21).

consumer legal funding

Big-Time Litigation Funding vs. Consumer Legal Funding—Advisory Council Member Writes on Hulk Hogan, Gawker, and Peter Thiel

Last month, ARC Advisory Council member Jeremy Kidd was published in Law 360 with an article that illuminates the differences between litigation funding—like was recently seen Hulk Hogan’s case against Gawker—and consumer legal funding. The piece talks about the Gawker case’s implications for on journalism and free speech, and also shows why public policy makers need to separate litigation funding and consumer legal funding when determining proper regulatory schema.

He references his own October 2015 research in the article, noting:

“With consumer legal funding… when legitimate claims are brought and justice served, it can actually benefit the economy by deterring bad and inefficient behavior.”

Kidd is Associate Professor of Law at Mercer University’s Walter F. George School of Law and holds both a Ph.D. in Economics from Utah State University and a J.D. from George Mason University School of Law. He is a preeminent thought leader on consumer legal funding, and has testified on the topic before state legislative bodies.

Read the full text Kidd’s article HERE.

Photo Credit: Flickr

consumer legal funding

Recent Survey Says 75% of Americans Are Worried About Losing Housing

Survey after survey tells us that the vast majority of Americans are living on the financial edge. More than just living paycheck to paycheck, few would be able to survive a $1,000 crisis intact. Now, a new study from the NHP Foundation (NHPF), a nonprofit affordable housing provider, shows that 75% of Americans are worried about housing stability. 57% of respondents are “concerned” or “very concerned” that they or a friend or relative could lose their housing—one of life’s most basic necessities. Another 19% are “somewhat concerned.”

Strikingly, nearly 40% of those surveyed are worried that job loss would cost them their housing. The issue transcends home ownership, issues with affordable housing, differences in income levels, and race and ethnic barriers. People from all walks are living far closer to homelessness than should be possible.

Accidents can unwittingly disrupt a person’s ability to earn an income, and you never get to stop paying rent, or the mortgage. Those bills keep coming, even if you are laid up with an injury, trying to recover. Surprisingly little protects people in these situations.

Consumer legal funding can help families stay in their homes, and regain stability in order to move on with their lives. By purchasing a small portion of a person’s anticipated recovery from his or her legal settlement—usually a personal injury claim—providers can help families can get the money they need to get by, while they wait for a full, fair settlement. Consumer legal funding gives people an option to ensure constancy during a trying time, and can improve quality of life.

Though housing is a critical public policy issue that must be addressed on a multitude of levels, it is imperative to ensure families have options now, while they work to make ends meet.

U.S. Chamber of Commerce Putting Big Business Profits Over People…Again

Everyday people in this country are struggling to make ends meet. They are living paycheck to paycheck, with little or no savings, and many have few places to turn when they face an emergency. No emergency is as tragic or heartbreaking then a death in the family. Many people buy life insurance policies to make sure their families are taken care of in the case of their untimely death, and expect the policies to be paid out in order to cover the mounting expenses that can result from such a loss.

But, as many in Illinois recently discovered, these benefits have often gone unpaid because of a loophole that allowed insurance companies to keep the money if no claim was made. So if the beneficiary didn’t know the life insurance policy existed, or if, in grief, it was forgotten, the insurance company could keep the money instead of making sure it got to those who surely needed it. And this fine loophole was something the U.S. Chamber of Commerce recently fought hard to defend—once again putting big business profits over people.

This past week, the U.S. Chamber of Commerce—through its offshoot The Institute for Legal Reform (ILR)—urged Illinois Governor Bruce Rauner to veto pro-consumer legislation that will ensure bereaved families get life insurance money their loved ones intended for them.

Before this legislation, no Illinois state law was in place compelling insurance companies to pay benefits to those who didn’t make a claim. So, many insurance companies (also paying U.S. Chamber members) didn’t—leaving more than $550 million in unpaid benefits owed to Illinois residents alone—according to the Illinois State Treasurer’s Office, which uncovered this loophole through audits.

To reiterate: The U.S. Chamber of Commerce and ILR fought to ensure insurance companies could keep the money owed to beneficiaries of their bereaved clients’ policies. These are policies that these clients paid premiums on, and gave them peace of mind before their passing.

Republican Governor Rauner—usually a pro-business ally of the Chamber—was unconvinced by ILR’s July letter, media push, and hard lobbying to kill a bill that will eliminate loophole. This past Friday, Rauner signed the bill, which passed through the legislature unanimously with bi-partisan support.

In a statement, Illinois Tresurer Mike Frerichs said “I’ve never met a man or woman who purchased life insurance with the expectation that the death benefits would stay with the insurance company rather than their family.”

The U.S. Chamber and ILR must disagree, somehow.

But, this isn’t the first time the Chamber has defended profits over people. In their fight to restrict access to consumer legal funding, the Chamber has tried to block people from having a necessary option many turn to when going through a crisis, like a car accident.

Consumer legal funding helps people replace lost income and get back up on their feet after an accident by purchasing part of the potential proceeds of a settlement for money now. Many people use it to hold out for a fair offer from an insurance company, instead of taking the first lowball offer, in an effort to ensure that they can continue to get medical treatment and recover properly long-term. But, fair offers cut into an insurance company’s bottom line.

At an Aug. 24 hearing in Chicago on the topics of unpaid life insurance policies, Frerichs said insurance companies “count on a certain number of policies not being cashed,” despite beneficiaries being entitled to, and likely in need of, the money.

Similarly, auto insurance companies count on a certain number of policies not being used, and for those where claims are made, many of those claims being settled for far less than fair value. So, anything that helps people recover fairly is viewed negatively. As a result, consumer legal funding has become a target of the U.S. Chamber of Commerce and ILR’s massive lobbying effort.

Thankfully, state legislatures, elected officials, and advocates have seen through ILR’s veil of concern for consumers, and have started acting to ensure access to consumer legal funding for those that need it. New laws out of Vermont and Indiana are two examples of legislatures acting in the interest of their constituents to preserve access.

ILR’s recent, egregious defense of loopholes benefiting insurance companies over the grieving families of bereaved clients in Illinois may have come as a shock to some. But to careful observers, it was likely unsurprising. The U.S. Chamber of Commerce and IRL defend the interest of their clients—major companies and corporations—not consumers, and often, not small business, though they claim to do so. ILR defends no one, only the bottom line.

 

consumer legal funding

ARC Advisory Council Spotlight: Charles Atkins, Jr.

Reverend Charles Atkins, Jr. is a community activist, pastor, and chaplain from the New York area with a deep commitment to social justice and community organizing. He serves as a bi-lingual pastor of the French Evangelical Church of New York and a chaplain at the Garden State Youth Correctional Facility in Yardville, New Jersey. Reverend Atkins joined the ARC Advisory Council earlier this year due to his interest in expanding access to justice and equality in the legal system.

He recently took a moment to chat with us about the importance of community and the challenges urban communities face. Listen below and get to know Reverend Atkins a bit better.

What makes a strong community?

“If we don’t understand that we need other people, I don’t think we understand life.” “I think there is a place for public, private, religious, educational…and industrial institutions to work together to help people in a community move forward.” 

Why is maintaining access to consumer legal funding so vital?

“One of things about consumer [legal] funding is that it gives people more time to really work out and deal with…urgent bills, or issues, or family… and be able to bring to a reasonable resolution the accident or dilemma that has come upon their lives.” 

What made you want to get involved with ARC?

“I think religious organizations, and the people that are a part of them, should be working with other organizations to benefit communities. I found that being on this advisory council is my opportunity to bring a perspective of what it means to work with people that are dealing with various challenges, and to work with an organization…that gives people hope for the future.” 

What unique perspective do you bring to the ARC Advisory Council?

“…a spiritual perspective. Spiritual in a sense of: ‘How are we not just helping people deal with their current problems, but how are we helping them prepare for a better future?'” “I’ve certainly had concrete experience with incarcerated and immigrant communities…a lot of people that are in financial situations of struggle…I’m really sensitive to the needs and perspectives of people in those types of situations.” 

consumer legal funding

The Fight to Stay Afloat

Could you survive 6 months without a paycheck? If so, you are lucky. The vast majority of Americans are living paycheck to paycheck—around 76% by last estimate. Two-thirds of people would struggle to cover $1,000 crisis. And as you can tell from these numbers, it’s not just the poor who are struggling. It’s middle and upper-middle class families who are struggling, too. According to another survey one-third of high income earners continue to live on what they earn.

But, life happens. Disaster seems to strike when you’re least expecting it. A seemingly-stable life can be turned upside down in as little as a few seconds.

When families are fighting to stay afloat, they need options.  Modest savings, selling big-ticket items—that can only get you so far. Consumer legal funding is a necessary option for people who have been involved in an accident and are trying to heal physically and financially. It can help them hold on until a fair insurance claim comes through, and is a safe way to move forward.

If you are one of millions of Americans who couldn’t survive 6 months without a paycheck, it could happen to you. Wouldn’t you want options?

consumer legal funding

Advisory Council Member Pens Article on New Indiana Law

Victoria Sahani, Assistant Professor of Law at Washington and Lee University School of Law, was recently published in Law 360 with her play-by-play of a new Indiana law regulating consumer legal funding. The regulations, which went into effect July 1, were a result of legislation passed this spring.

Sahani, who joined the ARC Advisory Council in 2015, is a well-respected expert on the topic of consumer legal funding, who just published her latest paper on the topic last year. In the Law 360 article, Sahani shows how Indiana law “[upholds] consumer choice while introducing protective measures.”

Read the full text article HERE.

legal funding

Two States Implement Laws that Lead to Consumer Choice

Landmark consumer protection bills that passed out of Vermont and Indiana this spring are set for implementation on July 1, 2016. These new statutes will create regulatory frameworks for consumer legal funding that provide comprehensive consumer protections crafted specifically for the product, and also preserve consumer access, largely adopting industry best practices.

The new statutes provide for notice and disclosure standardization of contracts, attorney sign off, protection of attorney-client privilege, and the banning of attorney referral fees. The legislation also makes the important distinction that consumer legal funding is not a loan. Because it’s a sale and purchase of an asset, not a loan, if a person loses their case, they owe nothing. It also can’t affect a person’s credit, put them into collections, or cause other collateral damage.

The legislation will also lead to consumer choice—especially in Vermont, where Attorney General William H. Sorrell’s Office and the Vermont Department of Financial Regulation (DFR) took over six months investigating the issue of consumer legal funding, issuing recommendations to the General Assembly. This is some of the most thoughtful legislation on consumer legal funding to be passed in the United States.

Both states saw the need for consumer legal funding, and validated its place as a necessary option for consumers. This is a really important step, and one that truly protects consumers.

Read more in our press release.

Photo Credit: Flickr

consumer legal funding

New Study: Older Americans Working, More Depending on a Paycheck

A new study recently released from PEW Research Center shows that more older Americans are working, and working more than any time since the turn of the century. With families still struggling to get by and recovering from the great recession, more and more people are dependent on a weekly paycheck even as they reach retirement age.

This can spell trouble for those who are unexpectedly involved in an accident. Incidents like car crashes can catch people off-guard, unprepared to deal with the financial damage it can cause. Especially for people working later in life, an accident can cause injuries that take longer to heal, keeping them out of work longer.

Consumer legal funding needs to be available for those who might not be able to get back to work right away do to their injuries. Otherwise, they can be left with the terrible choice of accepting a less-than-fair settlement—which can cause long-term financial hardship—or fighting to survive the long wait, potentially forgoing healthcare treatment and basic necessities. This choice is even more worrisome for older working people who may require treatment and medication to recover.

Consumer legal funding can be a lifeline for the millions of families trying to make it after an accident. Older working Americans, especially, need options when they have been injured. With more of them working out of necessity, they need options to bridge the gap.

Photo Credit: Georgia Business via Flikr