Top Myths Associated withLegal Funding

Legal funding is an exponentially growing industry worth a $3 billion industry, as reported in 2016, according to The New Yorker. The legal funding investment market is expected to grow bigger as they are uncorrelated with the market fluctuations, making them relatively safer compared to other investment options. Rather, they might be considered inversely correlated to the financial markets, as litigations may increase during the recession time due to the high number of insolvencies. 

But, there are multiple myths associated with legal funding, such as:


  • Is it Legal?


The legality of this practice is not a factor to be considered at all, as it is completely legal. Thousands of firms seek legal funding monthly. States regulate funding for legal firms much more as compared to others, looking at it with more scrutiny. However, legal funding is completely legal and ethical. 


  • Legal funding exploits plaintiffs.


One of the biggest myths forlegal funding is that it exploits plaintiffs at the most vulnerable time when they are least capable of making informed decisions. This myth is prevalent among attorneys who are concerned that dishonest lenders might use their clients’ situations to gain an immoral or unfair advantage.


  • Funding firms intervenes with the legal process.


Attorneys are more hesitant to recommend legal funding to their clients because of the myth that funding companies interfere always with the legal process.The fear is that once a plaintiff gets engaged with the legal funder, the funder exerts pressure on the attorney to settle the case and repay the funding advance. But, funding firms actually never get involved with the case. 


  • The process is not regulated


People believe that legal funding is inherently unfair to plaintiffs. The strict guidelines prohibit funding from giving one party a privilege over another, and any type of abuse will violate key principles. Rather than exploiting the vulnerabilities, legal funding should act as a safety net, providing financial support. Thelegal fundingindustry is tightly regulated, making it compulsoryto provide full disclosure to clients, submitting written reviews of attorney agreements, and adhering to many other conditions and guidelines.


  • Is it about getting a loan?


It may look like a loan, but the difference is that legal funds given must only be repaid in case the plaintiff wins or the lawsuit is settled. Otherwise, in case the lawsuit fails, there’s no obligation to repay the lender. An applicant receives a cash advance, which can’t be paid until there is a settlement that can be months following receipt. Plaintiffs have used credit cards and personal loans that left them in debt regardless of the results of their lawsuit, with no benefit to their financial situation.

By comprehending the basics of legal funding — and by gaining the complete knowledge to separate legal funding facts from fiction –makes the legal funding agencies more prepared to serve the clients well.