Who is a typical ALFA client?

Answer: Attorneys may refer their clients to an ALFA member company when the client is experiencing financial distress during the course of his or her case.

To pay for medical bills, purchase food and keep their homes...

In these situations, plaintiffs may be out of work and/or have large medical bills to cover as a result of their injuries. As a result, money quickly becomes tight and victims find it difficult to pay bills, purchase food and basic supplies, or keep their homes. Usually, they will first turn to friends, credit cards, employers, or their community for financial assistance, but when these options are exhausted they find Legal Finance critically helpful and timely. This assistance gives them the means they need to keep their families and lives intact while they await a complete and fair resolution of their case.

Does the industry take advantage of the less fortunate?

Answer: Quite the opposite. ALFA Members provide funding to plaintiffs who find themselves in very difficult financial situations. They have sustained an injury due to an accident beyond their control, and while awaiting resolution of their case and possible compensation for their injuries often find themselves financially strapped. Out of work and/or facing increased medical costs due to their injuries, clients suddenly find it difficult to make ends meet - to pay bills, keep their homes, and provide foot for their families.

If cases were quickly resolved, this time of financial difficulty might be short lived for these victims. Instead, personal injury claims can take on a average three years to resolve. This period of waiting can be most challenging, and might convince a plaintiff to take a settlement below what they or their attorney might feel they should receive, simply because the client and his or her family needs money to live. Legal Finance provides plaintiffs with the financial assistance to wait for a fair and complete resolution of their case.

Where well funded defendants may have the money and resources to work through the long process of resolving cases, many individuals often do not. Advance funding levels the playing field for these victims, so they can see their cases through to fair resolution.

Do non-recourse advances violate usury laws?

Answer: No. By making an advance against a pending case (more formally known as "non-recourse" Legal Finance) based on the future value of a case that may or may not ultimately be settled, ALFA Members share the risk of recovery and/or loss together with the plaintiff and the attorney. In fact, courts throughout the United States have held that such "at risk" advances are not loans.

How do ALFA member companies determine a client's eligibility for an advance?

Answer: Each ALFA member employs legal analysts or attorneys who review the pending case of each applicant by examining legal documents and speaking with the client's attorney. Only those plaintiffs with meritorious cases and a good likelihood of success become eligible for advance funding support.

Why is advancing funds against a pending lawsuit not considered a loan?

Answer: Simply, advancing funds against a pending lawsuit requires no repayment if the plaintiff does not receive a cash settlement or award upon resolution of the lawsuit. Because all advances are made on a "non-recourse" basis, the investor forfeits their entire advance for that case if the plaintiff is not successful in their lawsuit. ALFA Members provide funding for individuals who cannot receive a loan, because they do not have the cash flow or collateral required to receive a loan.

Why can't plaintiffs seek financial assistance from banks through a traditional loan?

Answer: Pending lawsuits are not assets that banks recognize when determining an individual's qualification for a loan. This asset class (pending lawsuit) has an unknown outcome, an uncertain maturity date, and the applicant has no current means of repayment. In addition, the majority of advances ALFA Members provide are relatively small and banks might find it uneconomical to process a large volume of small transactions.

Why do advances against cases have higher rates than traditional bank loan rates?

Answer: ALFA Members do not provide loans, and therefore traditional bank loan interest rates cannot apply to these funds. Non-recourse advances are provided in situations where there is an unknown outcome, an uncertain maturity date, and the recipient has no current means for repaying the funds advanced to them. These advances do not require repayment of the investment or any fees if the plaintiff does not receive a financial award or settlement when the case is resolved. If the case is lost or the defendant insolvent, ALFA Members forfeit their entire investment in that case.

Is it harder to settle a case with a non-recourse advance in place?

Answer: There is no evidence of that. Most companies fund less than 10% of the estimated net value of the case. They do this for a variety of reasons. One is the obvious risk that goes with the funding of a case. Another is so that the money is for life's necessities only and not for frivolous spending. The third reason is that funding only up to a maximum of 10% of the anticipated net value of the case assures that the investment does not interfere with the lawyer's ability to obtain a fair and just settlement.

ALFA Members have the role of providing their clients with the time to allow their attorneys to properly handle their cases. All members have embraced this 10% rule to allow attorneys the time to do just that. Members do not get in their way nor do they have any say in the strategy or the ultimate outcome of the cases.

Does the Legal Funding industry promote frivolous litigation?

Answer: Not at all. The non-recourse Legal Funding industry does not promote frivolous litigation and actually discourages it. If an ALFA member encounters a frivolous case during their evaluation, they will not fund it. Besides being against public policy, frivolous cases also make very bad investments, since the overwhelming majority of them have low probability of success. By helping victims with compelling claims, ALFA Members actually discourage frivolous litigation by denying frivolous cases financial support. By facilitating a more direct, transparent and rational distribution of capital to plaintiffs, we enable a more balanced and efficient legal system, which is consistent with the realities and demands of a modern free market economy.

Does the Legal Funding industry actually encourage litigation?

Answer: Not at all. In fact, quite the opposite is true. ALFA Members only fund a case after a claim has already started and the client has a lawyer, usually a number of months into litigation. ALFA Members help victims with their basic financial needs during the often lengthy time it takes to resolve a case.

Why do Legal Funding companies charge high rates?

Answer: ALFA Member company clients come from an asset class with an unknown outcome, an uncertain maturity date, and no current ability to service the advance. ALFA Members' own internal cost of funds, on average, is typically 15% per annum or greater. In addition, most companies have annual loss rates, which are usually a significant percentage of the amount funded. When you add overhead, wages, benefits and other general operating costs, you can see that on average, the true cost of doing business exceeds 30% per annum.

However, there is evidence that the cost of advances is starting to decline as the industry becomes more mature and companies are able to secure more traditional financing.

As the industry continues to mature, ALFA expects rates will continue to fall with more institutionally financed companies entering the marketplace. In addition, it is hoped that the more knowledgeable the banking community becomes about non-recourse funding, the greater the probability that ALFA Members will be able to achieve overall lower costs of capital. Those costs savings will be passed along to the clients in the form of lower rates.