Victims of personal injury due to the fault of third parties in dire financial straits have for years been the prey of companies that advance cash to them against their potential recovery or settlement. Now, former NFL players who suffer from CTE (chronic traumatic encephalopathy from repeated blows to the head) waiting to receive concussion payouts are also prey for these lenders.
The risk to the lending company is if there is no recovery, then there is no obligation to pay back the advance. In that circumstance the debt becomes what can be considered a forgiven loan. On the other hand, one attractive benefit to the borrower is quick cash. The burdens to the borrower can outweigh the benefits, however.
The brain injury victim typically will be required to sign a lengthy one-sided written contract loaded with fine print. The contract will allow the lender to obtain a very high rate of interest in the event of a recovery or settlement. The rate of interest exceeds interest rates that banks and credit card companies charge. The rate of interest is so high it can, depending on the case, wipe out or substantially reduce the net recovery (what is left over after payment of attorney's fees, case costs, medical liens and letters of protection). The lending agreement gives the lender contractual rights, possible standing to claim priority among creditors, perhaps intervene in the case and leverage or delay receipt of funds from a hard fought and long awaited recovery.
The New York Times has reported on predatory practices of lending companies searching for NFL concussion victims awaiting large settlements. Some NFL players have signed on and others have not. They are a vulnerable brain damaged group in debt with large expectations of receiving a sizable settlement—if not diminished by a cash advance with interest as much as forty percent that kicks in immediately.
The New York Times reported on former NFL Miami Dolphins player LaCurtis Jones who plans to borrow $100,000. Mr. Jones suffers from memory problems, anger issues and depression. He owes back child support, has no money left from playing in the NFL and remains confident he will be able to pay back the principal and exorbitant interest.
Lawyers representing personal injury and traumatic brain injury clients usually advise against accepting such cash advances on their case. Even in non-catastrophic cases loans of $5,000 to $10,000 in a $50,000 to a $100,000 case can substantially reduce the net recovery as well as the client’s expectations. In the case of a brain damaged NFL player wanting to borrow six figures against a potential seven figure settlement, the result can be similar.
Not all clients appreciate the legal ramifications of signing a contract. Some clients, because of their brain injury, lack the capacity to understand what they are signing. Many “borrow” the cash advance only to find themselves caught in a trap of a ballooned debt shattering their hope of financial security counted on in a settlement of their case or a fund from which to pay for much needed medical care or brain rehabilitation.
Caution is therefore recommended regarding the acceptance of any cash advance on a prospective settlement or recovery. The benefit of easy upfront cash is in most circumstances outweighed by the harm of high interest rates and a diminished recovery.