What Legal Funders Should Never Say to Plaintiffs

The Mighty Team

Written By

The Mighty Team

Reviewed by

Published On

October 29, 2016

Published On

October 29, 2016

Table of Contents
Share this Article

Quick Answer

As a legal funder, plaintiff relationship management can be a delicate process. More often than not, plaintiffs are going through the legal funding process for the first time, so keeping them informed is critical. We've talked about best practices in plaintiff communication in the past in our Ultimate Guide to Plaintiff Financing Part 1 and Part 2

Just as important, though, are things not to say to plaintiffs. In this article I'm going to outline the top 7 things legal funders should avoid saying to plaintiffs and why.

#1 Never communicate details about a financial transaction that could be misleading

As a general rule, companies that offer financial products have a duty to neither mislead nor misrepresent information about a transaction. Because legal funding structures can be unique from other types of financial transactions, it’s not always easy to communicate, and for plaintiffs to understand, the details of an advance. That’s why it’s important to ensure your intake team is knowledgeable about non-recourse advances, and just as trained on what not to say to plaintiffs as what to say.

One of the most frequently asked questions by plaintiffs is “What am I going to have to pay back?” This is a tricky question as companies have varying ways of structuring their agreements, and payment ultimately depends on the time to resolution.

One common way to answer that question is by providing an example: “We had a client recently who took $1,000 from us, and if her case settles in 18 month, we would be entitled to $1,600 of her settlement proceeds. Of course, we can’t promise you the same terms, but hopefully that gives you a ballpark.”

In our experience, we’ve rarely seen a plaintiff hang up because the estimated payback amount was more than expected. Most plaintiffs understand legal finance isn’t as inexpensive as other forms of finance, and simply want a frame of reference to be reassured that it’s not going to triple on day one.

#2 Never tell a plaintiff when their wire will arrive in their bank account

Plaintiffs often demand, and are willing to pay extra for, same-day wire service. We’ve jested that plaintiffs sometimes use their local bank’s fax machine to send your company back its fully executed and notarized agreement, and then they wait at the bank until the wire arrives.

When talking about wires, never make a promise about exact time of arrival when the processing is out of your control.

The best way to communicate to a plaintiff when a wire will arrive is by letting them know when the fully executed agreement needs to be signed and returned in order for them to receive the wire same day. Some funding companies have a 1:00 pm cutoff. Others go up to 5:30 pm since banks generally stop processing wires at 6:00 pm. Saying that wires get there on the same day is OK, but promising any time other than 6:00 pm can leave your customers dissatisfied when their expectations aren’t met.

#3 Never tell a plaintiff their attorney made you reject them for funding

Nearly all legal funders have encountered an attorney who tells them explicitly their client shouldn't receive legal funding. Whatever their reason, they'll probably ask - and certainly prefer - that you take the blame for rejecting the client instead of passing it onto them.

These situations have to be treated delicately. As a funder, you aren't obligated to tell plaintiffs every single reason behind a funding decision. Facilitating an environment where attorneys can talk to funders candidly is good for plaintiffs, attorneys, and funders in the long-run.

#4 Never tell a plaintiff you know what they are going through

76% of americans live paycheck to paycheck. An unexpected accident can lead to years waiting for the justice system to do its job. All the while, good people with good cases fall into a spiral.

So, when a plaintiff says they're in a desperate situation and need help now, it's not something to try to completely relate to or brush off. Empathizing is good, but unless you've been in a catastrophic car accident yourself, you won't know exactly what they're going through. It's something to acknowledge and respect, and set honest and forthright expectations about how you can, and can't, help. 

#5 Never promise a plaintiff they'll get more money once the case progresses

Legal funders tend to be conservative and avoid funding in excess relative to the expected lawsuit settlement. This is especially true early in a case when facts are still developing and treatment is still being sought.

But after an accident, plaintiffs are often in bad shape, out of work and in need of money for medical bills, rent and other life necessities. Therefore, when they want more money than you’re willing to advance, it’s easy to reassure them that if they start with a low amount of money, once their case progresses your company will definitely get them more. Don’t promise this.

While a case progressing is inevitable, you can never be sure how that progression will affect the value of the case. Some cases take longer than others. Some outright lose. Some plaintiffs don’t follow through on treatment or get surgeries doctors say they need.

Even with the best intent, it’s never wise to promise money in the future when you can’t control how the case develops.

Instead, explain how legal funding works in general. How as a case value increases, applicants may be eligible for more funding.

#6 Never give legal advice

All too often, plaintiffs see legal funders as another player in the justice system who can provide them with insights into their case, just like their lawyer. Even if you're a current or former attorney, resist the temptation.

Plaintiff funders typically only work with plaintiffs who are already represented by attorneys. Those attorneys are the only ones who should be answering questions about the case and should also be equipped to explain how non-recourse advances work.

#7 Never tell a plaintiff the financing they are getting is a loan

Legal funding is non-recourse. As all legal funders know, that means if a case loses the plaintiff isn't liable for any of the money personally.

Some people in the industry use the term loan as shorthand since it's familiar and an easy reference point for plaintiffs to understand. But on the whole, categorizing non-recourse advances as loans means subjecting legal funders to the same regulatory requirements as any lender, despite the fact that this asset class has a distinctly unique structure that makes it anything but a loan.

A number of states have passed regulation around legal funding but none has called it a loan. You shouldn't either.

About the author

Learn More

Reviewed by

About the reviewer