Understanding State Requirements for Seeking Pre-Settlement Funding

Published on Mar 16, 2020 at 9:06 pm in Legal Information.

Preferred Capital Funding provides lawsuit funding to plaintiffs throughout the country. If you’re in need of funding while in the midst of a personal injury claim, we can help. Before applying, however, it’s important to understand the state requirements for seeking pre-settlement funding, as it could affect the terms and conditions you sign. Let’s start by taking a look at how states protect borrowers in regard to traditional funding options.

Traditional Funding Options: How States Protect Borrowers

To understand pre-settlement funding regulations, it’s important to understand the regulations that exist for borrowing money from a bank or other financial institution. With traditional forms of funding, the state and federal governments try to protect borrowers from unscrupulous lenders. Laws generally regulate the amount of interest a lender can charge and how the lender discloses the terms of the loan.

In regard to interest rate limits, states control how much interest a lender can charge to the residents of the state. If lenders are found charging unreasonably high rates, there are often penalties in place to hold them accountable and ensure they follow the law.

With term disclosure, the federal government regulates how lenders inform the borrower about information like how the interest rate is calculated, how much interest the borrower will pay over the course of the loan, any fees that are included, and what the penalties are for failing to pay the money back.

The regulations discussed above protect consumers by making it less likely a lender will take advantage of a borrower and gives consumers the opportunity to make informed decisions about their financial decisions. Now let’s take a look at how lawsuit funding regulations are different.

How Lawsuit Funding Is Regulated

Unlike personal loans and other traditional forms of funding, lawsuit funding companies are generally unregulated. This is because of the difference in how repayment and fees work. For example, lawsuit funding can be nonrecourse. This means that if the plaintiff loses their case, they don’t have to pay the lawsuit loan company back. That difference is one of the primary arguments funding companies use when states try to enact regulations, because the funding does not work like a standard loan. It’s important to note, however, that nonrecourse funding is not available in every state.

While the federal government does not have any official regulations in place for pre-settlement funding, a number of states do. More than 10 states have enacted official laws, and a number of other states are considering regulating the practice.

The current regulations impact the states we serve and how the funding changes for clients who live in different states. To find out if you live in a state where we provide plaintiffs with cash advances, click here.

Examples of States That Regulate Pre-Settlement Advances

Some of the states we provide pre-settlement advances to that regulate the funding include Maine, Nebraska, Ohio, Oklahoma, Tennessee, and Wisconsin. Let’s take a look at what the regulations look like and how they could affect your chances of receiving the money you need to continue pursuing your personal injury claim.

In Maine, Nebraska, and Ohio, there are official laws that recognize the practice of litigation funding as legitimate and have started to implement some regulations. In Maine, for example, legal funding companies cannot assess fees for longer than 42 months from the date a contract is signed. In Nebraska, all nonrecourse civil litigation funding must involve a contract that includes the total dollar amount being given to the plaintiff, an itemization of one-time fees, the total dollar amount to be repaid, and an annual percentage rate of return. In Ohio, plaintiffs are allowed to cancel their contracts within five business days of receiving the funds without penalty or further obligations.

Oklahoma, Tennessee, and Wisconsin have enacted stricter regulations than the ones discussed above. Both Oklahoma and Wisconsin have imposed limits on lawsuit loans to ensure lenders are treating consumers fairly. In Tennessee, consumer protection laws are in place that cap the interest rates on all pre-settlement advances to ensure lending companies are not overcharging plaintiffs.

When we work with a plaintiff looking to secure funds, we make sure we’re in line with their state’s laws and regulations regarding lawsuit cash advances. We stay up-to-date on all relevant laws and amendments, so we can ensure our clients get the money they need as quickly and as easily as possible.

Pre-Settlement Funding from Preferred Capital Funding

If you have questions, get in touch with one of our funding experts. They’ll be able to guide you through the process and give you an idea of what pre-settlement funding could look like for you. It’s also important you have a discussion with your lawyer. We can only provide funding to plaintiffs whose lawyers are on board with the process and are willing to work with us. Submit an application today to have your cash advance in as little as 24 hours.

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