N.Y.’s lawsuit lending industry is out of control

By: Sanford Rubenstein

Over the past five decades, I have been practicing law representing victims and families of victims in some of New York City’s highest-profile police brutality cases, as well as victims of medical malpractice and accidents of all sorts.

Most of my clients’ cases don’t make the headlines. For the most part, they are everyday New Yorkers who have been wronged, mistreated, injured or abused and are entitled to their day in court. Due to their injuries, many can’t afford to pay their rent, put food on the table, or — in wrongful death cases — bury their dead. Some have bad credit or no credit at all, and they’re in desperate need of financial support.

Often, these victims turn to the lawsuit lending industry to make ends meet, borrowing against expected future settlements or judgments to cover basic living and medical expenses while they await the outcome of their cases.

While the industry does provide a valuable service, a complete lack of regulation has led to serious abuses by unethical lenders who take advantage of desperate individuals — often lower-income members of communities of color — charging them, in some cases, unconscionable interest rates.

As a result of these out-of-control rates, some who take out lawsuit loans realize little to none of their final financial settlement. This is absolutely indefensible and cannot continue. It is far past time for Albany to step in and set a reasonable cap on lawsuit lending interest rates.

Lenders maintain they’re taking a risk by providing plaintiffs “no recourse” loans against the outcome of their lawsuits, meaning borrowers don’t pay back a dime if they don’t receive recovery. But the reality is that these lenders — many of them backed by hedge funds, private equity and sovereign wealth funds — are making big money on these supposedly high-risk investments.

The global litigation finance industry soared to $39 billion in 2019, with the U.S. — now the world’s largest third-party lawsuit lending market — accounting for more than half of that and expected to grow to $20.5 billion by 2026.

This financial structure can allow secret and even foreign investors to take advantage of injured individuals who need cash quickly. At the end of the day, these investors line their pockets with the proceeds from victims’ injury lawsuits, while the long-awaited settlement money is siphoned away.

There is ample evidence of the damage caused by the lack of lawsuit lending regulation and how it compounds the suffering of those who have already experienced considerable harm — physical, emotional and financial. These include concussed former NFL players, 9/11 first responders, and wrongfully convicted ex-offenders, just to name a few.

To end these abuses, and more importantly, stop the over-the-top and highly damaging rates these lawsuit lending companies charge, regulation by the state is sorely needed during this legislative session.

Some might think that a lawyer in my position would be happy with anyone giving clients money upfront so that they can pursue their cases. But after witnessing the harm perpetrated by irresponsible members of the lawsuit lending industry, I feel compelled to speak out on behalf of those that can’t, won’t, or don’t know how to speak for themselves. It is time to protect vulnerable plaintiffs and get this industry under control.

Rubenstein is a personal injury, medical malpractice and civil rights attorney in New York City.