Lawsuit funding is not always a good idea

Warning for disabled employees who are thinking about getting a cash advance on their workers’ compensation claim.

Interest Rate

The Detroit Free Press is reporting on a woman who got stuck with a 350% interest rate after she accepted a $1,200.00 loan. She made payments equal to $1,170.75 but still owed another $1,922.00. Her credit score was dinged when she stopped payments under this agreement.

Michigan law normally prohibits excessive interest rates, but a loophole allows predatory lending to continue. This article should be a wake-up call for anyone who is considering payday loans or lawsuit funding.

We have blogged about lawsuit funding on several different occasions. Our clients face extreme financial hardship when they get cut-off from workers’ compensation. The promise of quick money becomes an attractive option. Here is some information that everyone should know and better ways to get financial relief.

Attorney cannot loan money to client

Michigan law permits attorneys to file workers’ compensation cases on a contingency fee basis. This means no attorney fee is paid unless a successful outcome is achieved. This helps level the playing field with corporations and insurance companies who can afford to pay their attorneys an hourly rate. The attorney can also advance litigation expenses in furtherance of that case. However, it is unethical to give other financial assistance to a client.

Potential conflict of interest

Our experience shows that lending companies quickly become a nuisance. They want to review confidential information before releasing any funds. Telephone calls about case status are frequent and pressure can be put on the attorney to get a case settled quickly. We do not believe a lawsuit advance company should have any input about whether a case is settled or proceeds to trial.

High interest rates and fees

Many of these cash advances are simply bad deals. Individuals can expect to pay high interest rates and fees. Settlement money also goes straight to the client and no promises to withhold money can be made. This fact usually results in the loan being automatically denied.

Advance lump sum

Michigan law already has a procedure for seeking a loan from the insurance company. A disabled employee who is currently receiving wage loss benefits can seek an advance lump sum payment. The insurance company is allowed a maximum 10% interest per year. Future wage loss benefits will be reduced until the advance is paid back. A magistrate can order payment of the loan if good cause is shown.

Settlement is a better option

Our clients typically settle their workers’ compensation claims for a lump sum cash payout. This allows them to do their own medical and vocational rehabilitation without having to deal with the insurance company. Money can be used to start a business, find a new job, or pay bills. Settlement provides the financial relief that many people need to get back on their feet after a workplace accident.

Michigan Workers Comp Lawyers never charges a fee to evaluate a potential case. Our law firm has represented injured and disabled workers exclusively for more than 35 years. Call (844) 316-8033 for a free consultation today.

Related information:

How to get a loan from workers’ compensation

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