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T hird-party litigation loans have a rather nasty reputation. The funding of legal cases by complete strangers causes many intel- ligent people, some of them lawyers, there are others, some of to declare these kinds of loans abusive, preda- tory, and a black mark on the justice system. And yet them also lawyers, MBAs, and financial advisers, who believe when administered to the right people, by the right people, these "lawsuit loans" help those in need when no one else will. Stephen Pauwels is one such person. Yes, Pauwels is in the loan business. Yes, he profits from plaintiff-victims. But his point of view will surprise you. Pauwels believes his own industry is dangerous, similar to both the Wild West and the American subprime catastrophe. "Any time you've got desperate people with money dangled in front of them, they're going to take as much of it as they can get, regardless "ANY TIME YOU'VE GOT DESPERATE PEOPLE WITH MONEY DANGLED IN FRONT OF THEM, THEY'RE GOING TO TAKE AS MUCH OF IT AS THEY CAN GET, REGARDLESS OF WHAT BRIDGEPOINT FINANCIAL SERVICES INC. THE COST IS." STEPHEN PAUWELS, of what the cost is," says Pauwels, co-founder and co-owner of BridgePoint Financial Ser- vices Inc., one of Canada's largest providers of litigation loans. "The loan companies say, 'Here's more money. Take it. Take it.' They don't care what the cost is; they have dollar signs in their eyes right now." Most lawsuit loan companies in Canada entice people by offering a "don't win, don't pay" policy, giving vulnerable people the sense they have nothing to lose by taking one of the loans. After all, if they lose their case, they don't pay a dime. The reality is that this business model is seriously flawed. With extremely high interest rates, and equally high fees, plaintiffs have plenty to lose and they usually don't know exactly how much until the bill arrives in their mailbox at the end of their case. The exorbitant fees charged by many loan companies have not gone unnoticed by the courts. While assessing costs in Giuliani v. Region of Halton, a case that included a litigation loan, an Ontario Superior Court judge expressed outrage at the whopping $92,734.26 of interest charged by a third- party lender on a $150,000 lawsuit loan (after roughly 12 months). Writes Justice John Murray: "the interest rate on the loan obtained by the plaintiff for disbursements is unconscionable. It is turning the world on its head to assert, as does [the plaintiff 's lawyer] Ms. Chittley-Young, that this is an access- to-justice issue and that ordering interest payments on the Lexfund is reasonable. This loan agreement does not facilitate access to justice. This loan agreement does nothing to advance the cause of justice. It is difficult to believe that any lawyer would refer a vulner- able client to such a lender." Pauwels completely agrees with Murray's comments. "That case is a classic example of why we feel like we're getting a black eye from the practice of others in this space. This shows you exactly how not to use these loans and how they can be a disservice." Pauwels believes that litigation finance is a tool that can be very effective when used responsibly and conservatively, and like any form of lever- age of debt, it can be disastrous if it's used irresponsibly. A former investment banker, Pauwels com- pares his own industry to the Wild West. He would welcome regulation. "This is an unregulated industry and the terms offered are all over the map. There are lenders who, unfortunately, when you add up all different interest rates, admin charges, cheque-cashing fees, early-payment fees, penalties (and any other euphemisms for costs), charge close to the criminal-level 60-per-cent interest annual- ly. There are lenders who advertise 19 per cent, but when things are added up, it's 55 per cent." www.CANADIAN Lawyermag.com N O VEMBER / D ECEMBER 2011 35