We’ve discussed on this blog before the importance of membership in the American Legal Finance Association (ALFA). Like other groups in the finance industry have regulatory bodies, the consumer legal funding industry has ALFA, which is a trade association that represents the leading consumer legal funding companies across the country. The organization was formed in 2004 and is dedicated to ensuring fair, ethical and transparent funding standards within the legal funding industry.
Resolution Funding is a member of ALFA, and through that membership, we agree to uphold with a detailed code of conduct. That of course includes things like agreeing not to intentionally overfund a case or intentionally advance a client more than they need at the time of their advance as well as acting reasonably in client negotiations.
Very soon, ALFA will adopt a uniform contract among its members in an effort to increase transparency in the industry. Why is this important? Here are a few reasons:
The uniform contract defines up front what a legal advance is.
A lawsuit advance is not a loan (and thus, it does not need to be paid back if you lose your case), but so many outside the industry incorrectly say otherwise. A uniform contract would explain this at the outset to ensure there is no confusion about the type of non-recourse funding you are receiving.
Fees are detailed and easy to understand.
When evaluating several litigation funding companies, it can be like comparing apples to oranges when it comes to fees. The ALFA contract should include a fee disclosure that explains whether fees compound monthly or if a flat interest rate will be use. It should also explain any up-front fees, whether rates are capped at a certain amount, and whether a firm negotiates with you if a case is successful, but the settlement is less than anticipated.
You’ll always have a payoff schedule to reference.
A payoff schedule shows how much you’ll owe at 6, 12, 18, and 24 months after you enter into a funding agreement. A uniform contract would address this as well as any minimum payment clauses and how payoff would be handled if a case settles in the middle of a fee calculation period.
Uniform contracts make things easy for your attorney.
The irrevocable letter of instruction section in a contract gives your attorney instructions to provide the funding company status updates about your case and pay the funding company before you receive the balance of your settlement funds. Again, this is helpful because it makes things very clear to you and your attorney how funds will be distributed to you.
No matter who you work with, you’ll get the same contract.
Perhaps the greatest benefit of ALFA’s plans to adopt a uniform contract is the fact that any settlement funding companies you work with will have the same contract, so you can easily evaluate companies side by side. This way, you’ll never be blindsided by details you were previously unaware of or unclear on what fees a company charges (and how that compares to other companies).
In the months to come, the American Legal Finance Association is supposed to introduce a uniform contract that its member firms like Resolution Funding will adopt. We are pleased that the organization continues to hold its members to a high standard, resulting in ethical practices across our industry. If you have questions about this, call us any time at 1-855-LAW ADVANCE.