Who is a typical ALFA client?

Answer: An ALFA client can be anyone who has hired an attorney on a contingency-fee basis to seek financial compensation for a personal injury suffered in an accident that wasn't their fault. Typically, the injury suffered has left them in financial hardship due to an inability to work. The consumer can contact one of the ALFA member companies directly to apply for legal funding or their Attorney may refer their clients to an ALFA member company when the client is experiencing financial distress during the course of his or her case. The client most often uses the funds received to make mortgage or rent payments, pay medical bills, purchase food, car payments, tuition, or basically anything else they need. Legal funding is used to pay for life's necessities.

Prior to applying for legal funding, it is common for the client to first turn to friends, credit cards, employers, or their community for financial assistance, but when these options are exhausted they find legal funding 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, they 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 food for their families.

If cases were quickly resolved, the client might be able to endure this time of financial difficulty. Unfortunately, personal injury claims can take on an average three years to resolve. While well-funded defendants have the money and resources to maintain a lengthy legal battle, most often individual plaintiffs do not. For the client, this period of waiting can be quite a challenge, and might force a plaintiff to take a settlement below what they or their attorney think they should receive, simply because the client needs those funds to support the immediate financial needs of their family.

Instead of taking advantage of the less fortunate, legal finance provides the clients with the financial assistance to wait for a fair settlement from their case. Legal funding levels the playing field for these victims, so they can see their cases through to fair resolution.

Does non-recourse Legal Funding violate usury laws?

Answer: No. By providing legal funding 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" payments are not loans. Legal funding is "non-recourse", which means that the funding does not have to be repaid if the plaintiff does not prevail in their case. The fact that legal funding is "non-recourse" distinguishes it from a loan.

How do ALFA member companies determine a client's eligibility for legal funding?

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 legal funding support.

Why is Legal Funding to a plaintiff in litigation not considered a loan?

Answer: In almost all cases, legal funding is provided on a "non-recourse" basis. Non-recourse means that when an ALFA Member company provides a legal funding, if the client does not receive a cash settlement award upon resolution of their case, the client is not obligated to repay the legal funding. Because legal funding is made on a "non-recourse" basis, the funding company forfeits their entire amount of legal funding if the plaintiff is not successful in their lawsuit. A loan would require repayment of the funded amount even if the client lost their case.

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, because the pending lawsuit has an unknown outcome, an uncertain maturity date, and the applicant has no current means of repayment. In addition, the majority of legal fundings that ALFA Members provide are relatively small and banks might find it uneconomical to process a large volume of small transactions.

Why is the price charged for Legal Fundings higher than traditional bank loan rates?

Answer: Traditional bank loans and legal funding are two very different types of transactions. ALFA Members do not provide loans, and therefore traditional bank loan interest rates should not be compared to the pricing of legal funding transactions. However, the price for a legal funding is higher than the interest rate on a loan because the funding companies are taking a far greater risk of being paid back on a legal funding than the risk a bank takes on a loan. For example, if a person takes out a bank loan to buy a car but can't continue to make payments to repay the loan, the bank can repossess the car and sell it to pay the loan themselves. In contrast, in the case of a non-recourse funding, if a client loses their case and therefore their ability to repay the funding, the client does not have to pay it back and the funding company loses 100% of their money.

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

Answer: Industry experience has shown that legal funding does not impact an attorney's ability to settle a case. Most companies average funded amount is equal to 10% of the estimated net value of the case. They do this for a couple of reasons. One is to minimize the obvious risk of loss that accompanies the funding of a case. Second, funding is provided only for life's necessities not for frivolous spending, nor as a replacement for the expected settlement value. By funding only a small percentage of a case's anticipated value, the legal funding does not jeopardize a client's willingness to continue with the case, nor does it place an undue repayment burden on the final settlement award which may otherwise interfere with the lawyer's ability to obtain a fair and just settlement.

Actually, ALFA Members provide their clients with funds that greatly benefit the client's attorney, providing them the time to properly handle their cases toward a fair resolution without having to settle prematurely. ALFA Members do not get involved in the legal aspects of the case whatsoever, 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: Overall, the pricing for legal funding is not high relative to the benefits provided the client and the attorney, and the risks assumed by the ALFA Member companies. Specifically, pricing for legal funding is influenced by a number of factors; the quality of service provided to both the client and the attorney, the actual risk involved in the expected repayment of the advance, the cost of capital used for the fundings, marketing and operating costs, and the length of time between funding a case to the repayment Each ALFA Member's business may be different in how they manage these costs which greatly impacts their pricing.

Since the birth of the legal funding industry, the cost of Legal Funding, and subsequently the pricing has declined as the industry has matured. ALFA expects that rates will continue to fall as market knowledge and competition increases which will inevitably benefit the client.