This Foundation is Changing the Model of Lending for Plaintiffs

01/12/2018 12:56 pm ET

I have been fortunate to have never been personally involved in litigation. However, my background in the legal industry has given me a window into that world, and I have seen how lawsuits can often turn into marathons for both plaintiffs and their attorneys. Even if a case is leaning toward settlement or a favorable jury verdict, the road to the finish line can be a long one. Many plaintiffs who bring personal injury lawsuits are out of work and have been for a while. Funds diminish fast when a main source of income is suddenly gone.

Once a plaintiff and his or her family have exhausted their savings and resources, there are only a few solutions to get financial help in a short amount of time. One of those options is the non-recourse lending industry. But companies that offer non-recourse advances aren’t regulated by the federal government – and most states don’t have regulations in place either – which means they can charge staggering interest rates and make a big time profit. In turn, plaintiffs get stuck paying back compounded interest that has grown to a bigger sum than their settlement amount. At that point, bringing a lawsuit wasn’t even worth it, and that’s not what our civil justice system is about.

The non-recourse industry has been trucking along that way for decades. But a non-profit organization emerged last year, and it is breaking the mold. The Bairs Foundation offers plaintiffs a fairer lending alternative as they pursue their cases. While many for-profit companies charge 50 to 100 percent compound interest, this organization provides advances at seven percent simple interest. That’s a big difference in the amount plaintiffs will need to pay back.

Bairs’ lending model is so different, in fact, that on paper it seems too good to be true. How could a nonprofit just enter the non-recourse space and do something so different?

The Bairs Foundation’s co-founder, John Bair, built his success through a broad-based settlement planning company. By working on thousands of cases over the past few decades, he witnessed the caustic effect non-recourse lending has had on some of his clients. The Bairs Foundation is his answer to the need for a more sustainable model. I spoke with John, who started the foundation with his wife, Amy. He described their organization’s practice and what they hope to accomplish for individuals and the lending industry as a whole.

What motivated you and Amy to create the Bairs Foundation?

After working with plaintiffs on thousands of settlements, we could see the difficulties for trial lawyers to resolve cases that have very significant liens and loans. We also saw how expensive it could be for the families that exhausted their money during litigation. But advances often leave plaintiffs with a fraction of what they could have gotten if they didn’t have to borrow. In our practice of [settlement] planning with families, if they didn’t have much to work with, it was very difficult to plan their futures.

As a nonprofit, we want to go to other nonprofits or institutions that care about people going through the civil justice system and believe that just because you’re a plaintiff in litigation, you’re still a financial consumer. We think there are other organizations that are open-minded and will be supportive of our mission and our organization, so we hope to raise and borrow from those organizations. The reality is that most of these families do not have the ability to borrow, or they would otherwise go to the bank. No financial institution, for the most part, will help these families unless they have collateral. Thousands of people are not in those circumstances. They lost the ability to work, or they’re caring for a disabled child. They are not “bankable” for the most practical purposes. So, the only avenue for funding is a very expensive loan, and we think that is unnecessary.

Where does the interest go that plaintiffs pay back from the advance?

It offsets some of our operating costs. We don’t do a lot of marketing. We hope and think that the concept is noble and there’s a lot of good faith associated with the effort we’re making, and that the word of mouth about what we’re doing will accomplish any marketing objective. The interest we charge and collect is passed on to the next family for the most part, because the money returns to the pool and gives the foundation the ability to help other families.

Non-recourse lenders often encourage plaintiffs to apply for as much money as they want and as often as they want. That seems like it could get out of hand. Does Bairs have a cap?

We do. We have board-approved maximum of $25,000 per individual. There are exceptions, but the mission of the foundation is to help as many people as possible. Oftentimes, the average is $2,500 or $5,000 per advance that our organization is providing. We want to be able to help more families instead of just one that needs a lot of money. But in extreme circumstances, especially with a severe disability, someone might need $1,500 to $2,000 a month just to survive so they’re not evicted from their home, or so they can get the critical medical attention they need – and it can be expensive. We need to be selective, so we can help as many people as possible.

What do trial lawyers typically say about the non-recourse industry – and how does that compare to the feedback you have gotten since you started the foundation?

It’s a mixed bag. The preponderance of trial lawyers I know have strong negative emotions toward the non-recourse lending industry. But at the same time, they know it’s a necessary evil, that families do run out of money. They’re not able to get to the finish line. How they’re supposed to do that without a support network – there’s not a solution for that, especially for long-term litigation cases. Since we’ve launched the Bairs Foundation and have been able to provide relief, our solution has been welcomed. In terms of ethical borrow, we think we’re in the wheelhouse.

Are there any good players in the for-profit space?

There are some good companies. They still charge a very expensive rate, but they are partnered with trial lawyers’ organizations. They recognize, as we do, that families need funding, and trial lawyers need their clients to be funded. There are hundreds of legal funding companies out there that are providing resources to families in litigation, but I would say the good players are only a handful. There are a lot of companies that are incredibly abusive and predatory and without any regulation or caps on interest rates.

Where do you see the non-recourse industry going from here?

It’s not the entire industry that is going to change. There are always going to be cases that have significant risk. The non-recourse industry as it stands today will remain, because there are always going to be cases that have so much risk that they will be able to charge very high rates. But we have started the conversation, so we hope to get some philanthropic organizations that are civil justice minded off the sidelines and network to find pools of money to help families. We have already made some amazing connections with like-minded organizations that had no idea that the industry even existed.

I think the future will depend on whether our foundation is replicated, because that is one of the core missions of the organization. We want a model that can be replicated and can go to Boston or LA or Dallas or Naples and find community-based nonprofits and charities that want to help the citizens in the communities that are in this position. If we’re really successful, there will be more nonprofits supporting the enterprise that will create downward pressure on rates for cases that don’t have a lot of liability risk. It will also bring awareness that there is another way of doing this, and we’re hopeful that legislators and civic leaders will take note that there is another way to fund a fair percentage of the need that’s out there.

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