Why is it a purchase, not a loan?
Easy—loans are backed by collateral and/or a person’s credit. Consumer legal funding isn’t. It’s a purchase of potential proceeds from a legal claim, and providers are paid only if the customer’s claim is successfully resolved. If a claim is unsuccessful, because it’s a purchase, a person’s credit isn’t affected, and they can never be subjected to collections. No debt created = no cycle of debt.
Consumer legal funding requires no payments because the only source for getting paid comes at the end of the settlement process. And, people know Day 1 how much the funding costs—no interest calculations or hidden fees.
How much legal funding can a person receive?
Each funding provider has its own criteria to determine if it will provide funding, and if so, how much. ARC’s industry best practice is to fund 5%-10% of the provider’s estimated value of a case, ensuring that people take home a meaningful portion of their settlement even after attorney and court costs. $2,000 is the average funding for ARC provider members.
Do providers have a say in case settlements?
No. ARC’s industry best practices also prohibit interfering or participating in litigation.
Do providers ask for non-public information from attorneys?
No. Consumer legal funding providers neither request nor obtain privileged or confidential information.
Why are there so many names for it?
Consumer legal funding is a relatively new option—only starting to be offered on a larger scale about 10 years ago. Since then, all providers have been small businesses, each calling it something that made the most sense to their customers. Over the years, it has been called pre-settlement funding, litigation funding, alternative litigation finance, legal financing, civil procedure funding, third- party litigation funding, plaintiff financing, or a combination of the aforementioned terms.
In an attempt to influence regulatory policy regarding consumer legal funding, opponents with a business interest in eliminating access have called it a lawsuit loan, lawsuit lending, or lawsuit funding though as we have discussed previously, those terms are inaccurate.
Our coalition uses the term consumer legal funding, or legal funding for short, as it is the most widely used name and the one that is becoming the preferred term.
You can check out our blog on the subject HERE.
Are litigation finance and consumer legal funding the same?
No. The major difference: consumer legal funding can’t be used to finance litigation or cover legal expenses.
Consumer legal funding is used by everyday people to meet daily expenses while they wait to receive a fair settlement.
Litigation finance is, by definition, used by law firms and large corporations to cover the costs of litigation.
Does it interfere with attorney-client privilege or case settlements?
No, Consumer legal funding providers neither request nor obtain privileged or confidential information. Furthermore, ARC’s industry best practices prohibit participating in litigation.
Does it have an effect on civil justice system?
No. Research shows that if consumer legal funding has any effect on the system, it is to speed up fair settlements—reducing the burden on the system. Consumer legal funding is also an alternative to loans that can result in collection actions, further lightening the load.
It also has no effect on frivolous lawsuits being filed or staying in the system because consumer legal funding cannot be used to pay for case costs or to otherwise further the litigation of a claim. To qualify for funding, the consumer must have an existing claim and already be represented by an attorney.