Legal and economic experts agree that consumer legal funding greatly benefits individuals who are pursuing legal claims.[i] Research also shows that the costs of consumer legal funding is considerably lower than the cost of a credit card or other financing sources for many consumers who have living and medical expenses to pay while waiting for a fair resolution of their legal claims.
Consumer Funding Costs Less Than Credit Cards For Many Consumers
Claimants who need consumer legal funding typically have very few alternative sources of money when they are injured and need money to pay their bills. They are often in lower income brackets with lower FICO scores and rarely have access to bank loans.[ii]
One alternative source of money for these injured claimants is to maximize the limits of their credit cards, which can be very expensive. According to the CFPB, “cardholders with subprime and deep subprime [credit] scores pay two to four times more in interest and fees per dollar of credit extended” than average credit card users. [iii]This is confirmed by recent reports regarding the level of interest rates for “retail credit cards,” which hit a “record high average interest rate of 30.5% this past year.” [iv] The effective annual financing charge cost when accounting for this high interest expense plus annual fees, late fees, and maintenance fees can be much higher, even up to 70% or more.[v] Late fees on credit card payments have in particular been criticized as especially onerous costs for consumers that impose $10-14 billion annually on all users. [vi]
Other alternative sources of money for injured claimants with lower credit ratings can be just as high. For example, unsecured consumer installment loans frequently carry interest costs ranging from the high double digits to as high as 299%.[vii] Similarly, the CFPB has noted that consumers utilizing overdraft services on a debit card can pay effective interest charges at rates well above 2,000% annualized.[viii]
Consumer Funding Has No Debt Collection Or Credit Rating Costs
Consumer legal funding also does not have the debt collection or credit rating costs that credit cards and other sources of consumer financing impose. That’s because consumer funding is non-recourse: consumers only pay for the funding they receive if and when they recover on their lawsuit. They make no regular payments on the funding they receive until the lawsuit is complete, and they owe nothing in the event that the proceeds of their lawsuits are not sufficient to pay the funding company. There are no debt collection or credit rating consequences for consumers if they recover no proceeds and the consumer funding company thus receives no payments.[ix]
By contrast, credit cards, like other unsecured installment loans, payday loans, and checking account overdrafts, require regular principal and interest repayments. In addition, credit cards and other sources of consumer financing require full repayments of all amounts due by a certain date. If any those payments are not made in full, there are “severe consequences” that have significant costs: The financing company can suspend the credit line, accelerate the total amount due, initiate debt collection proceedings that include garnishment of wages, and cause a substantial decline in the consumers’ credit scores.[x]
None of these alternatives is economically feasible or attractive for claimants who may need money for an extended period (two or three years) and can only make monthly payments once their legal claim is resolved.
Conclusion
Consumers pursuing legal claims can achieve higher recoveries if they have the financial strength to reject “lowball” settlement offers that insurance companies offer initially in a case.[xi] That financial strength for many consumers can be achieved with Cartiga’s consumer legal funding, which has a cost that is lower than other consumer financing sources.
[i] See, e.g., https://cartiga.com/articles/why-the-benefits-of-cartigas-consumer-legal-funding-outweigh-the-costs/; https://cartiga.com/articles/the-benefits-of-cartigas-consumer-legal-funding-fully-explained/; cartiga.com/articles/benefits-of-using-consumer-legal-funding-to-pay-medical-expenses/; Heuristics, Biases, and Consumer Litigation Funding at the Bargaining Table, Vanderbilt Law Review, Vol. 68:1:261, 266 (2015); Ronen Avraham and Anthony Sebok, An Empirical Investigation of Third Party Consumer Litigant Funding, 104 Cornell L. Rev. 1133 (2019); Paige Marta Skiba and Jean Xiao, Consumer Litigation Funding: Just Another Form of PayDay Lending? Law and Contemporary Problems, Vol. 80:117, 119, 121-123, 126, 137-138, No. 3 (2017); Andrew F. Daughety and Jennifer F. Reinganum, The Effect of Third-Party Funding of Plaintiffs on Settlement, American Economic Review, Vol. 104, No. 8, pp. 1,2, 5-6, 21 (August 2014); Susan Lorde Martin, Litigation Financing: Another Subprime Industry That Has A Place In The United States Market, 53 Vill. L. Rev. 83, 84-85, 100, 101-102 (2008); GAO Report on Third-Party Litigation Funding: Market Characteristics, Data, and Trends, pp.12-14, 18-19 (December 2022). See also https://cartiga.com/articles/winning-case-for-consumer-legal-funding/
[ii] CNBC, Banks are keeping credit card rates high even after the CFPB rule they blamed for high APRs was killed, at (May 7, 2025) https://www.cnbc.com/2025/05/07/credit-card-aprs-banks-keep-high-rates-inspired-by-now-dead-cfpb-rule.html (May 7, 2025) (“CNBC Report”).
[iii] Consumer Financial Protection Bureau, The Consumer Credit Card Market, at p. 50(October 2023).
[iv] CNBC Report, supra, at 3; Forbes Advisor, What Is The Average Credit Card Interest Rate This Week? (May 5, 2025) https://www.forbes.com/advisor/credit-cards/average-credit-card-interest-rate/
[v] See e.g., the disclosed APR and other charges for subprime card issuer Continental Finance assuming utilization of a $500 credit limit as shown: (https://continentalfinance.net/Content/PDF/GetTermsAndConditionsCELTIC.pdf).
[vi] CNBC Report, supra, at 3-4; see also Consumer Financial Protection Bureau, Final rule on Credit Card Penalty Fees (Regulation Z) at 9, 13. https://files.consumerfinance.gov/f/documents/cfpb_credit-card-penalty-fees_final-rule_2024-01.pdf. (“CFPB Final Rule”)
[vii] See, e,g, loan rates based on disclosed rates on installment loans from Elevate Credit & Curo Financial (https://www.bankrate.com/loans/personal-loans/reviews/rise-elevate/#at-a-glance; https://ir.curo.com/~/media/Files/C/Curo-IR-V2/reports-and-presentations/curo-stephens-virtual-ndr-june-23-v1.pdf).
[viii] https://www.consumerfinance.gov/ask-cfpb/what-are-the-costs-and-fees-for-a-payday-loan-en-1589/; see also Susan Lorde Martin, Litigation Financing: Another Subprime Industry That Has A Place In The United States Market, 53 Vill. L. Rev. 83, 98-101, 105 (2008).
[ix] https://cartiga.com/articles/risks-that-justify-the-costs-of-consumer-legal-funding/
[x] CFPB Final Rule, supra, at 14-15; Federal Reserve Bank of St. Louis, Costs of Defaulting on Credit Card Debt Depend on the ”Exit” Taken by Borrower (April 1, 2015) https:///www.stlouisfed.org/publications/regional-economist/april-2015/costs-of-defaulting-on-credit-card-debt-depend-on-the-exit-taken-by-borrower.
[xi] https://cartiga.com/articles/consumer-funding-increases-claimants-recoveries-in-personal-injury-cases/
