If you deal with the transfer of money or goods, you probably deal with brokers in some fashion. Brokers are utilized in many industries: mortgages, real estate, stocks, wholesale goods. The list is endless. If you need something, someone will find it for you. For a fee, of course. So, too, will you find brokers who work to bring litigation funding companies together with plaintiffs, defendants, and their law firms.  

Brokers and Consumer Lawsuit Loans

Litigation funding started in big commercial lawsuits and in helping lawyers cover their expenses during protracted cases. But, many funders soon dipped down into the courthouses of America to capture a market worth hundreds of billions of dollars in personal injury, employment discrimination, product liability, and catastrophic multi-plaintiff actions. 

While some consumer lawsuit awards have reached the stratosphere, the average personal injury case settles for less than $100,000. The average lawsuit loan is $10,000 or less, or about ten percent of the case’s value. When scaled, it is not difficult to see that there is money to be had in the field of consumer lawsuit loans.  

As more funders and investors entered the market and more litigants became familiar with lawsuit loans, the industry began to attract a class of entities (some individuals and some companies) that would set up shop in the middle and help make sense of it all.  

The Lawsuit Loan Process

Understanding what a broker does helps to know how consumer lawsuit loans are processed and funded.

Plaintiffs typically initiate a transaction by contacting a litigation funder directly, often through search engines, TV commercials, or other advertising. To qualify for litigation financing, consumers must have pending a lawsuit. Some companies will provide loans to claimants in large class action-type suits, like sex abuse, mass tort, or asbestos cases, who have documented and verifiable claims.

The application process is simple. The funder needs little more than the plaintiff’s contact information, description of the case, and the attorney’s name. The funder will contact the applicant’s attorney to learn more about the lawsuit and gather documentation. The funder’s underwriters do what underwriters do and will recommend a loan amount. If the applicant agrees, the funder draws up the paperwork, the parties execute the agreement, and the funder transfers the money to its new client. 

Depending on the level of cooperation by the applicant’s attorney, the process can take as few as 24 to 48 hours to fund a well-documented straightforward personal injury case. Complicated cases and higher dollar amounts can take a bit longer. 

Who Puts Up the Money? 

Although these transactions are commonly known as lawsuit loans, they bear little resemblance to the traditional bank loan. Adequately recognized, they are an investment vehicle. The funding company puts up a sum of money in return for a share of the eventual settlement. Its profit is the fee charged to the plaintiff. The investment’s fate stands and falls with the fate of the case. If the plaintiff loses the case or it fails to settle, both the plaintiff and the investor lose. 

The money the litigation funding company uses to buy into a plaintiff’s lawsuit often comes from its own coffers. But, the litigation funder does not always have a pool of cash in its bank accounts available to fund the hundreds of thousands of dollars in deals an average company can put together in a month. Instead, the funder relies on investors to put up that money.  

How Does a Broker Add Value? 

Google and TV are remarkably effective advertising media for the litigation funding industry, but they are not the only sources. Brokers are a growing resource. There are no statistics on how many funding transactions brokers initiate. 

According to the CEO of Tribeca Lawsuit Loans, brokers bring us somewhere between 20 and 25% of our business.

Like any middleman, the broker’s primary role is to curate and grease the transaction’s wheels. To the funding company, the broker brings qualified and often pre-vetted candidates to the table. For the consumer, the broker‘s role is matchmaker: the most cash for the lowest fee. To that end, the broker will likely

• Develop or follow up on leads – potential clients often referred by law firms or medical offices

• Conduct a preliminary evaluation to determine if the case is appropriate for litigation funding

• Gather necessary paperwork from the client’s attorney

• Match the client with one or more funders based on the type of case, value, and client’s location

• Negotiate the terms of the transaction

• Hold the client’s hand while the funder’s underwriters evaluate the application

• Supervise the execution of the paperwork

A broker’s real value lies in connections, with access to more information, more investors, and more funding companies than a client would have by randomly calling an 800 number in a Google ad. The good ones spend time developing rela­tionships with investors and funders to get a feel for their lending requirements: which companies welcome clients from particular states, which companies prefer what types of cases, who has the lowest fees, and the most generous underwriters. Brokers also develop relationships with attorneys and medical personnel, surprisingly lucrative sources for leads. 

Won’t Broker Fees Raise the Cost?  

Brokers earn their keep but can often work a better deal and close it faster. They know which funders are more likely to work with which clients and give them the best terms. The best brokers know their market, are shrewd negotiators, and advocate for their clients. 

Litigation funding brokers charge an average of 15%, comparable to what leasing brokers and shipping brokers charge. That 15% is not set in stone. Often the fee is negotiable, and some brokers will cut their percentage to get the deal done. To the broker, the deal is done when the customer signs the contract with the funding company. 

Unlike the litigation funder, the broker is not ordinarily required to wait until the case settles before claiming its fee. The broker will almost certainly have gotten its money from the funding company when the funder and the client commit to the contract. 

No one will argue that litigation funding is cheap, just like no one will say that title loans are a bargain or that credit card cash advances are budget-conscious ways to borrow. The transactions are risky for the funder and investor because, among other reasons, they are non-recourse for the client. A plaintiff who doesn’t win or settle will walk away with no further obligation on the transaction while the funding company and the investor absorb 100% of the loss. When people choose emergency borrowing, they likely understand that they will pay for the privilege. But, unlike other sources of ready cash, the lawsuit loan broker can save the consumer money despite the fee. 

How Do you Find a Broker?

Finding a broker can be an issue. At present direct funders and brokers have no duty to disclose their roles. Litigation funding is a young industry that has experienced exponential growth over the last 20 years. Few legislatures have even attempted to regulate the companies that provide funding, much less those entities that broker the deals.   

The bottom line, unless plaintiffs ask or brokers volunteer the information, customers won’t know they are transferring an interest in their litigation to a third-party funder or investor until they see another name on the paperwork. Unless they are particularly savvy, many will not realize the difference or even care. 

In an industry barely 20 years old, the lawsuit loan broker has quickly become a vital player in a market estimated to invest more than $100 million each year in consumer lawsuits. The indications are that the industry will continue to grow. Likewise, brokers will continue to bring together those with money to invest and those who need it.