Beware of lawyers offering “prefund” settlements in injury cases

Clark Howard | March 22nd, 2017

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Have you been injured in an accident? How many ads like that have you seen on TV or on the back of buses in metro areas? There’s a hot trend right now where lawyers are offering upfront cash payments to take you on as a client in injury cases. But this could be a disaster for your wallet, not to mention a drain on the legal system.

Right now, our country is in a litigious mindset where people think getting injured is like hitting the lottery. Of course, some people do get legitimately hurt and they should be compensated. But that’s not where our country’s mentality is right now. Today it’s all about “one call does it all” for this or that lawyer who promises to get the most possible money over the smallest injury.

There’s a locust industry springing up of lawyers who pay you with a “prefund” of your settlement for the right to take you on as a client. In exchange for the money and their services, you agree to pay an enormous interest rate that effectively eats up any future settlement.

So a lawyer may guesstimate your case will be worth $25,000, for example, and then advance you that money. But then when the case settles, you don’t get any money, even if the settlement was for a good deal more. It all gets eaten up in interest charges.

We’re all getting ripped off, really. This becomes a machine that must be fed. Suddenly, the interested legal parties have to see that a target settlement is reached, and then it goes to settle up that advance return and the massive rate of interest.

I told you recently how in Florida there are even lawyers on spec who think they can beat the big banks for doing fraudulent work on foreclosures. So they’re offering money to represent you in foreclosure cases, just like a cash bounty. And if the lawyer brings the bank to heel, the lawyer makes a big pile of cash.

There’s something wrong with this kind of economic incentive, and without a doubt we need to ban all advances on any legal case.

This segment originally aired in March 2011.

This post was last modified on March 22, 2017 2:36 pm