At Fair Rate Funding, we are frequently asked if we conduct credit checks in connection with the funding process. The answer to this question is no.” However, demand loan companies routinely use other “checks” to help underwrite them. This post will go into this in a bit more detail.
credit checks
Lenders use credit checks to assess the likelihood that a loan will be repaid and the terms of the loan will be met. Technically, a lawsuit financing transaction is not a loan because, in the event that the lawsuit is unsuccessful, the cash advance does not need to be repaid. Instead, the funder buys a portion of the case proceeds, if any. Because of this, the applicant’s creditworthiness is not an issue and credit rating is not usually a factor in the underwriting process. However, the background of the applicant can be an issue and should be factored into the decision to fund a particular case.
background checks
When making a case for lawsuit cash advance financing, the insurer must evaluate all relevant facts. Since the lawsuit loan is not repaid unless the case is ultimately successful, lawsuit fund underwriters face a difficult challenge because they must base their decision on a limited amount of information. In fact, thousands of cases are funded each week based on just a few documents (eg, police report, insurance information, and medical records) and a phone call to the attorney’s office.
What little information the subscriber has should be used to the greatest extent possible. One piece of information is the applicant’s background.
Pre-settlement loan companies typically use background checks only after a case is approved for funding. Typically, the lawsuit finance team wants to see if there are other potential lien holders who would be in a priority position in the case. Examples may include federal tax liens or child support obligations.
However, in some cases, a background check may be used as part of the approval process. For example, if a case is approved but the applicant’s background check shows a history of fraud, insurers would seriously consider this fact when deciding to offer a cash advance. In the worst case, the applicant could be perpetrating fraud. At best, his past transgressions contribute to his credibility as a truthful witness in the case.
Most of the time, background checks simply show misdemeanors and/or civil lawsuits. In the vast majority of circumstances, background checks do not disqualify a case from funding. However, as noted above, the presence of federal tax liens or child support obligations can make it difficult to fund the claim.
When these situations arise, all hope is not lost as there may be steps to rectify the situation. For example, just because a tax lien or other priority judgment is listed on the background report does not necessarily mean that a valid lien still exists. Obligations such as these are often in place or satisfied, but are not updated in the background check. In other cases, a common name may generate many links in a background search, but only after further investigation can the link be verified or considered a bug.
As stated above, many tools are used by lawsuit finance companies to more accurately assess the risks associated with advancing cash against the future proceeds of a pending lawsuit. Although applicants’ credit scores are generally of no real importance, background checks do play a role in the underwriting process.
Thank you for your interest in the pre-settlement loan business.
pmc