It makes a difference — why not pay attention?
At some point during your client’s litigation, it is likely they will express to you their lack of resources and financial stress. We all know that claims can take years to resolve, and time is not generally on the plaintiff’s side.
Aside from the physical and psychological impairments that victims have to cope with, the financial constraints and difficulties caused by an inability to work can truly add “insult to injury."
The maximum $400 per week in income replacement benefits does not go far when victims have financial obligations such as rent or mortgage payments and children or dependents relying on them — and the unfortunate reality is that such benefits are often prematurely terminated. As for the limited number of victims who have long-term disability insurance available, the monthly benefit generally leaves a shortfall relative to expenses and is also subject to termination by the insurer.
While many would like to believe that savings may be available or that friends and family can be there to assist, the reality is such that a majority of individuals are often financially stretched even prior to an adverse event such as a personal injury. Access to traditional credit is generally dependent on an ability to make monthly payments and maintaining a positive credit score — conditions that typically require an income that is non-existent. As such, it is not difficult to see that financial assistance in appropriate cases may be as relevant as physical therapy.
Clients often approach counsel and ask for a loan or inquire where they can obtain financial assistance. While many lawyers have painted “litigation loans” with a broad tainted brush, there are significant differences among lenders that can benefit clients and counsel alike if the details are analyzed and prudent decisions are made.
Quite often, we find that clients are going out and Googling “settlement loans” in a frenzy and applying to more than one company. Not only does this make the process more onerous for counsel, it often results in misleading messages being conveyed to applicants by various lenders in an effort to place a loan. While the reality is that some clients are so desperate that they disregard the interest rate and cost of borrowing altogether, many others simply ask about the interest rate and how quickly they can receive the money, only to be enticed with misleading answers.
Lenders often use the interest rate as a lure, highlighting that their rate is lower than that of a competitor, yet they avoid discussing the very relevant administrative fees, hidden or recurring charges, rate increases and discharge fees that generally increase the cost of borrowing substantially.
Perhaps it is time that we shift the emphasis from the initial amount borrowed or the interest rate, to focusing on the total cost of borrowing and the bottom line owed at the time of resolution. With these factors in mind, there is a very compelling case for lawyers to at least advise clients about the high-level differences in the marketplace and to care about where their clients are borrowing money. Not all lawyers, doctors, and lenders are the same.
Our office was recently approached by counsel to refinance a loan that the client obtained following an online search and telephone conversation whereas the lender advised of a relatively low-interest rate. By the time counsel noticed the fine print in the loan documents, the client was so desperate to obtain funding that they insisted on proceeding immediately regardless of the terms not previously disclosed.
This particular client applied for and received two loans within two months of each other, from an “OTLA approved” litigation lender. The client was charged $750 in “set up fees,” plus an additional $700 in “disbursements,” a further $227.50 in HST, and interest in the amount of $1,009 on the entire sum.
The total amount of interest and fees was over $2,600 on a relatively modest loan of $5,000, all within a time period of less than one year. Had the client obtained a loan with a CaseMark, the amount charged by the other “OTLA approved” lender for HST alone was comparable to our total all-inclusive fee of $250. Just in fees alone, this client would have saved $1,177.
With respect to the interest charged, borrowing from CaseMark would have resulted in significant savings on the exact same $5,000 loan. The bottom line is that the client would have saved almost $1,500 in a one-year period on a modest loan. This is money the client could have kept in their pocket, not to mention the avoidable headache that can become a discussion point at the time of resolution.
The unfortunate consensus among numerous clients and lawyers is that they do not know or understand the fees being charged by most lenders until they see a final breakdown, which is perhaps too late. Quite concerning, clients and law firms often receive a letter with one sentence indicating the total balance owing without any particulars regarding dates, interest or fees. Only after additional inquiry is a detailed payout statement provided and the true cost of borrowing is made apparent.
Choice and competition in the market is healthy and encouraged. At the same time, it is imperative and prudent for lawyers to consider what companies they are dealing with and the potential ramifications of irresponsible and onerous lending. Counsel often considers which experts they’d like to engage for various reports — why not contemplate their financing vendors and those providing necessary financial assistance to often vulnerable clients.
Not all lenders are the same — prudent decisions today can avoid unnecessary headaches in the future.
Dawn Simons is client relations manager with CaseMark Financial.