Hardworking Americans are living on the financial edge. With 76% of households living paycheck-to-paycheck, families are stretching even farther to reach the American Dream. This struggle isn’t limited to those who are truly impoverished. According to a recent Brookings Institution study, nearly two-thirds of households living “hand-to-mouth” are middle-class families that own homes and save for retirement. This means that a staggering 25 million working-class households are unprepared to weather unexpected events that could threaten to push them to the edge of financial ruin.
So what happens if life gets unpredictable? When you’re injured in an accident? When you have your ability to earn an income taken away? Insurance industry special interests have recently been on offense, criticizing legal funding—an industry that provides upfront cash to litigants in exchange for a portion of the potential settlement. Yet, Oasis Financial co-founder and CEO, Ralph Shayne rebuffed these critics Thursday saying that his company helps families “bridge the gap at a time of real need.”
He pointed out that insurance companies “have a profit motive to capitalize on people’s immediate financial needs and give them a quick offer that is cents on the dollar to the well-established fair value of the claim. The effect can be crippling to families that need that money to get back on their feet.”
Insurance industry talking heads often try to push their agenda by intentionally mischaracterizing legal funding as a “lawsuit loan.” In reality, financial professionals generally agree that it has the features of an asset sale, not a loan. Legal funding companies purchase a small portion of a consumer’s legal claim and do not get paid until the case is settled, which can take many months to a several years. Legal funding requires no monthly payments. And, if the case does not settle, the consumer keeps the money—all of it.
Legal funding causes no risk to a consumer’s credit. No risk of being sent to collections. And, no risk of being forced into bankruptcy. Shayne says that “these benefits can be a huge relief to families feeling the uncertainty and stress that comes with fighting for a fair settlement in the legal system.”
Credit cards and other types if financial products are certainly other options for many families trying to get by while waiting for a settlement. Yet, they come with their own risks. For example, if a person loses his or her case and has been living on credit cards, he or she will still have to pay that money back—plus interest—and can get trapped in a long, devastating cycle of debt.
“Choice is what families in distress need, and yet struggle to attain,” Shayne stated. “We give them a valuable option.” While legal funding is available in most states, new insurance industry-driven regulations have forced some companies like Oasis—one of the founding members of the Alliance for Responsible Consumer Legal Funding (ARC)—to limit access in places like Tennessee. This has eliminated options for families. Other state legislatures are considering such regulations, but they may hurt consumers more than they help.
Retha Arbogast of Evergreen Park, Illinois, was a passenger in a vehicle that was hit by a distracted driver. The accident caused a severe neck sprain, ruptured disks, and partially flattened her spinal cord. Arbogast’s injuries made it impossible for her to work at her job cleaning houses, and bills quickly piled up. With legal funding, Arbogast was able to keep herself afloat until she was able to work again. “I was able to pay my physical therapy bills and keep a roof over my head…If legal funding hadn’t been available to me, I can say with certainty that I would be homeless.”
Shayne says he hopes that future regulations are based on industry best practices, not “controls being pushed by the trillion-dollar insurance industry in an aggressive organized effort that has hurt working families.” Model legislation being forwarded by ARC would help standardize contracts to improve transparency for consumers.
“We strive for transparency and clarity in interactions with the families that come to us for help,” Shayne said. “We know they know that they are in tough situations, and we take our role in helping them very seriously.”