One of the most common complaints about plaintiff funding is the lack of transparency when it comes to fees–injured clients may think the cost for funding is one amount only to find that the all-in cost is actually significantly higher when all is said and done.
Compounded Fees Add Up: Many people have a hard time understanding the concept of compound interest (continually adding interest on top of historical interest). Compounding interest on plaintiff funding can mean less funds for the injured client once a case settles. The initial cost of funding may appear reasonable only to balloon if the case takes several months or years to settle.
High Origination & Underwriting Fees: Another potentially hidden expense in plaintiff funding can be origination and underwriting fees. A plaintiff funding company may advertise a low-fee funding plan, but offsets these artificially low fees with high administrative fees. How high? If the injured client receives $1,000, it’s not unusual for some funding companies to deduct $300 in the form of an origination fee.
Such fees are not openly advertised and are often times purposely designed to be misleading, making the cost of the advance appear cheaper than it really is. Often times, it’s only when a case settles and settlement funds are distributed does the total cost of the advance reveal itself.
The Solution: The solution to plaintiff funding transparency problems is to avoid working with funding companies that utilize compound interest, origination and underwriting fees. Rockpoint Legal Funding, for example, uses a simple table that shows clients what will be owed upon settlement. For example, if a client receives “X dollars” in funding, the amount paid from case proceeds will be “Y dollars” on the date of settlement. No compound interest, origination, or underwriting fees, no surprises—full transparency. This straightforward pricing model is honest, easy to understand and helps clients effectively budget the cost of the advance before clients commit to receiving their money.