The Consumer Financial Protection Bureau (CFPB) recently in conjunction with the New York attorney general are taking RD Legal Funding LLC to court for violations said to be related to federal and state laws concerning consumer protection. A suit filed in the U.S. District Court for the Southern District of New York indicates that the organization was targeting former NFL football players who were to receive settlements from a class-action suit based on concussion injuries they sustained. In addition, RD Legal was offering advanced payments to many slated to receive settlements in the 9/11 World Trade Center attack. Apparently, their advertising is potentially confusing and deceptive as those who receive the advanced payments while awaiting their settlement payments are often unaware of the finance charges applied, which are reported to sometimes near 250%. In addition to advancing funds to future recipients of settlements, other organizations are actually funding the costs to bring suits and litigate them.
Gerchen Keller Activity in Commercial Lawsuits
An investment firm based in Chicago known as Gerchen Keller Capital has been involved in financing high-dollar commercial lawsuits. The company is alleged to have invested over $1 billion in these lawsuits in exchange for a share of the settlement awards. Nationally, some states prohibit these practices, while others do not have laws in place relating to third-party litigation financing. Ethical concerns have been heard throughout legal circles who suggest that such funding significantly prolongs cases and takes advantage of the civil court system.
Financiers Deny Wrongdoing
Those operating within this little-known financing segment claim that they provide a needed service in the market and that their loans are outside the realm of consumer-based credit law. Pre-settlement “funders” essentially provide advanced funds for those awaiting payouts in exchange for a fee. Their contracts are apparently structured in a manner where these transactions are not classified as loans to bypass banking and regulatory oversight and rules. J.G. Wentworth, a large player in this market, says that the CFPB is investigating in areas beyond their scope of authority.
Colorado’s Laws Regarding the Issue
The Colorado Supreme Court issued a ruling in 2015 that these transactions are non-asset purchases. They ruled that they are governed by the consumer loan authorities under the Consumer Credit Code of the state. This means that finance charge limitations and full disclosure of related terms and provisions must be done. Currently, 11 states have some variation of laws regulating this market and more are likely to adopt in the coming years.