One of the most common questions we are asked when working with a new applicant is whether we run credit checks during the legal funding application process. The answer to that question is “NO” we do not run or use credit checks.
Legal Funding Requires NO Credit Checks
While most financial institutions rely on credit checks for their loan and funding approvals, with legal funding there is never a need to credit reports of any kind. Since a legal funding agreement is not considered a typical loan, there are no credit score or history necessary. Yes, there are funds advanced to a plaintiff when an application is approved, it is not really a loan. The legal funding company actually purchases a portion of the proceeds, if and when the case wins in court. An applicant’s credit score has nothing to do with approval of the case for funding. What does matter is whether the case is winnable or not.
Background Checks Used Sparingly
When a plaintiff applies for legal funding, the underwriter must review and assess all related facts when considering approval. Since the money is not required to be repaid unless the case is successful in court, the underwriter needs to try and determine the risk Many cases are funded each week with their approval based on a few important documents alone – like medical records, police report, insurance information, and other legal documents.
The little information available for review must be used fully when considering approval of a case. Legal funding companies will sometimes use background checks after a case is approved for funding. They do this to see if there are any tax liens, or child support obligations or similar. There are some instances where a background check will be used during the approval process, if they use it then it’s to look for fraud which definitely would need to be considered when considering approval of a case. If the plaintiff did have a fraud in their background, even with a case that looks winnable, it could change the outcome of the case. The plaintiff might not be deemed a strong or reliable witness in court due to the fraud background.
However, most information gained from a background check has little effect on approval for legal funding. In fact, in many situations the background shows minor criminal offenses which have little bearing on the funding approval.