Judge dismisses Litigation Loan Company Claim requiring Borrowers to pay Compound Interest

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Lexfund is a litigation loan company which loans money for the purpose of assisting claimants in financing their personal injury litigation, including disbursements, medical expenses and living expenses. At some time in the past, the company granted similar loans to five different individuals, each of whom had been involved in a motor vehicle accidentThe common thread between these five individuals was that they all retained the law firm of Ferro & Company.

Mr. Ferro, in his role as personal injury lawyer, arranged for a loan from Lexfund for each claimant. The loans were expected to cover living and medical expenses that would allow the defendants to prosecute their tort action without the concern of a financial burden throughout the process.

Each loan had a clause that stated no repayment of the loan would be required if the borrower's civil action was unsuccessful, but the loans would have to be repaid if the borrowers were awarded damages. Every one of the five individuals directed and authorized Mr. Ferro to repay their loan upon settlement of their court action. However, for reasons that were never disclosed, Mr. Ferro never complied with this directive and on March 12, 2015, he made an assignment for bankruptcy and then passed away three months later.

Lexfund filed a suit against each of the borrowers as well as Mr. Ferro's estate for the outstanding loan payments plus interest. The five defendants/borrowers filed a counterclaim, alleging that Lexfund (the plaintiff) violated several sections of the Consumer Protection Act (CPA) and charged that Lexfund was not entitled to any interest.

Case example

In Lexfund v Ferro et al, 2016, a case management judge was tasked with resolving the group of Lexfund court actions. In reviewing the loan procedure, Justice Sloan noted a number of irregularities on the part of Mr. Ferro.

Each of the borrowers were given blank authorization forms for their signature for the loan application. Once the applications were approved, the funds were transferred into Mr. Ferro's account and unfortunately, none of the borrowers received a loan statement from Mr. Ferro. When Lexfund initially commenced an action against the borrowers, Mr. Ferro acted on behalf of his former clients.

All of the borrower's personal injury actions resulted in a settlement so there was enough money to pay the outstanding amount on their respective loans, however, they were either not paid at all or only partially paid. Unfortunately for the borrowers, due to extremely high initial annual interest rates of 19.5 to 24% and the fact that interest was compounding monthly, the amounts being claimed by Lexfund were very substantial in comparison to the initial loans.

In Lexfund, the defendants argued that Lexfund only communicated with Mr. Ferro and never directly with them. They claimed that Lexfund breached the Consumer Protection Act in the following ways:

  • Lexfund failed to give disclosure within the time parameters set out in the Act.
  • Disclosure was not given to the appropriate party, i.e. the individual borrowers/defendants.
  • The disclosure that was provided did not comply with what was required under the Act.

The judge agreed with the defendants that the plaintiff did, in fact, breach the CPA in a number of ways. The most significant breach was the plaintiff's failure to forward any disclosure to the individual borrowers, as legislated by the Act.

Further, because the loan documents were signed in blank, no disclosure was given at the time they were signed. He also noted, after reviewing the loan statements which were produced by the plaintiff, that even if they had been sent to the defendants, they were misleading.

The judge concluded that had the defendants been provided an appropriate loan statement either before or near the time of entering into the loan agreement, they would have had a better understanding of how quickly their repayment amounts would escalate and be better equipped to make a well-informed decision. However, they were never given that chance.

Justice Sloan dismissed the plaintiff's claim for compound interest. However, he concluded that the borrowers should have anticipated that they would be required to pay some interest and a fair rate would be 5% per annum simple interest, beginning from the date each defendant obtained their loan.

Accident victims and their families have a great many decisions to make and issues to deal with, in the aftermath of an accident and serious injury. Having to cope with medical treatments, legal issues and financial losses is often emotionally stressful as well as financially taxing.

Having a clear and open understanding of your legal rights with regards to the obligations of any organization with which you have entered into a contract, whether your insurance company or a litigation loan company, is vital and provides peace of mind and a certainty about where you stand legally, during this challenging period.

If you or a loved one were injured in an accident, call Rastin Gluckstein Lawyers today to schedule a free initial consultationWe will provide a frank evaluation of your case and your best options for obtaining fair compensation for your losses.


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