Originally Published July 24, 2015
By and large, attorneys report that they understand that plaintiff financing is an important option for their clients and have seen firsthand how it helps their clients remain patient while waiting for a fair settlement offer.
But many attorneys still gripe about the process of financing plaintiffs. Attorneys want cases to end with happy clients. What largely determines the happiness of clients at the end of a case is how much money they think they are pocketing. Unfortunately, when mentally calculating the total sum they pocket in the end, many clients seemingly forget the cash advances they received earlier from a financing company. Thus, they are left disappointed.
As maddening as this can be for attorneys, it is worse for classical economists, who use the assumption that money is completely fungible in their models. But behavioral economists have shown that our mental accounting is different from actual accounting. We treat money different based on where it comes from. For example, while we are slow to part with income (which we worked so hard for), we are much quicker to spend windfall gains (because they seemingly fell in our laps). The most ridiculous thing to economists, though, is that we treat our income tax returns as windfalls, rather than income.
Financing plaintiffs by definition is an advance of money, and sometimes that advanced money is forgotten about at the end of a case. Many clients categorize the cash advance in a different mental accounting segment than the court award or settlement. The plaintiff may get $10,000 from a financing company early in a case, but will forget to add that back to the total amount they get 8 months later when the case settles. For example, even though a client’s case may have settled for $100,000, he might get $50,000 after attorney’s fees and other liens. But he really pocketed a total of $60,000 – the $50,000 at the end of the case plus $10,000 as an advance from a legal funder.
Attorneys can help their clients remember the real amounts they get using some of these tips to properly set expectations about the process of being financed:
- Help ensure your clients aren't financed excessively by funding companies. Most plaintiff financing companies won't finance more than 10% of what they think the case is worth. This standard helps ensure that your clients are still pocketing plenty of money at the end of their settlement. Help your clients and their funders maintain this standard.
- At the time of funding, ask your clients what the cash advance is going to be used for. Most folks tend to remember concrete things like, "don't forget you already got $5,000 which paid for your surgery's deductible ."
- When your clients receive money from legal funders, remind them that receiving these checks means lessening the amount they will end up with after settlement. This helps your clients avoid the "out of sight, out of mind" mentality that, as mentioned above, easily leads to disappointment.
- While writing the closing statement to your client's case, make sure to conspicuously note the amount your client has actually received from plaintiff financing companies funders already. This will help jog the plaintiff's memory that they've already gotten an advance.
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