Of the many types of litigation that go through the U.S. court system, class action lawsuits take longer to settle than most. It can be discouraging as a litigant in a mass torts suit, with costs continuing to mount as you wait for your settlement to arrive.
Pre-settlement funding for class action lawsuits is a type of non-recourse funding meaning you get a partial advance against an expected class action lawsuit settlement. This form of financing is not the right solution in all cases, but it can provide a risk-free opportunity to get the cash you need now on the strength of your anticipated settlement.
Is It Possible to Fund a Class Action Lawsuit with Pre-Settlement Funding?
If your class action lawsuit is strong enough to go to trial, you are entitled to borrow money from it. Borrowing against your lawsuit can involve taking a pre-settlement loan in the form of a risk-free cash advance.
What Is a Class Action Lawsuit?
A class-action lawsuit or mass tort lawsuit is a civil lawsuit filed on behalf of a group of citizens or business entities – the class is the group of plaintiffs. In class action lawsuits, the plaintiffs have suffered common injuries resulting from the defendants’ conduct. At least one individual or entity must act as the representative of the group.
The issues of a class action might vary, but those issues will be relevant to all class members.
Class actions can be brought in federal or state court.
There are many issues and cases that can be brought as class actions. These can be broadly categorized as follows:
- Personal injury and product liability: Personal and product liability class-action lawsuits are typically brought when a large number of people are harmed by a defective product. Pharmaceutical fraud, for example, can involve harmful drugs being manufactured and distributed on a large scale. Other common examples of this type of class action lawsuit include sexual abuse, sports litigation, human rights violations, and nursing home negligence resulting in mass disasters.
- Consumer: Consumer class actions target business entities who perpetuate systematic illegal, or fraudulent business practices harmful to the consumer. Monopolistic schemes. Market allocation agreements and price-fixing are the types of antitrust cases that involve many consumers being scammed or otherwise harmed.
- Securities: Securities class actions can occur when investors harmed by whistleblower litigation or investor fraud bring class actions.
- Employment: Groups of employees who feel discriminated against can bring class-action lawsuits against their employers – immigrant workers with wage and hour issues, for instance.
Class action litigation is involved and time-consuming. The timeframe for settlement is often lengthy. Most cases will take at least two years to settle, while many take much longer.
Why Are Class Action Lawsuits Preferred?
While each litigant could easily bring their own action, combining these actions into a single class-action lawsuit is more expedient for the courts, the plaintiffs, and the defendants.
For plaintiffs, class actions are an efficient and practical route to recovery. With class actions, there is a single set of witnesses and experts, and a single set of documented issues. Resultantly, one law firm can more easily handle a large class action than separately trying multiple cases.
In many individual cases, damages are not high enough to justify the cost and time of bringing the cases separately to trial. One example of this is a bank illegally charging small fees to millions of customers. With low potential damages, it would not be worth the time and cost of a lawyer filing a $100 lawsuit for all wronged customers. Contrast this with a single class-action lawsuit claiming hundreds of millions of dollars on behalf of millions of clients, a class action well worth bringing.
With a single recovery, all victims of the class action are entitled to an even distribution of the damages. If multiple lawsuits are filed, on the other hand, the first few plaintiffs may get most of the proceeds, with the defendants’ assets diminished and insufficient to pay subsequent compensation claims.
For the courts, it is much cheaper to hold a single class action than multiple lawsuits. With one judge and one courtroom, court schedules are kept clearer and costs minimized.
What is Pre-Settlement Funding?
Pre-settlement funding goes by many names, including settlement funding, legal funding, litigation funding, lawsuit loans, and legal cash advances.
This form of financing is not like a traditional loan. Your creditworthiness and income are not relevant factors when applying for a settlement loan, and you will not make monthly payments.
Instead, pre-settlement funding is a non-recourse cash advance representing a percentage of your anticipated settlement or award. You repay the principal plus interest and a funding fee if you win your case. If you lose your case, you repay nothing.
You can use the funds from a lawsuit loan for any purpose. Common uses for pre-settlement funding include:
- Rent and mortgage payments
- Tuition fees
- Auto loan payments
- Medical expenses
- Prescription medications
This form of financing works well for victims of civil rights discrimination, personal injury claims, and class-action lawsuits.
All that counts is the strength of the case and the likelihood of a settlement, so many people unable to qualify for a traditional loan use pre-settlement funding to meet everyday expenses while waiting for an award or settlement.
The most significant drawback of pre-settlement funding for class-action lawsuits is the length of time it takes for class actions to settle. With interest on lawsuit loans usually compounded monthly, you could end up paying back much more than you borrow. You should always explore all other options before you consider taking a lawsuit loan on the strength of a class-action lawsuit settlement.
Qualifying for Legal Funding for a Class Action Lawsuit
Pre-settlement funding involves borrowing a percentage of your expected class-action lawsuit settlement. As such, your credit score and income are not considered, and neither is your employment status.
If you are bringing a class-action lawsuit against an entity or individual and you have legal representation, you should qualify for settlement funding.