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and make lending decisions on that basis," says Pauwels. His company, as a rule of thumb, does not lend more than 10 per cent of what it con- servatively values the cases at. It charges a maximum of 24-per-cent interest, compounded semi-annually, and the average loan for an indi- vidual is about $7,500. The loan is dispersed on a monthly basis, which is less expensive for the client, says Pauwels. Byron Dudley, CEO of Rhino Legal Finance, in business since 2003, explains his company's high-interest rates this way. "On a $3,500 loan, the client may pay 35-per-cent interest in the first year. We cannot offer the same rate as a bank. We have no cash flow. We have some files that are in the system for seven years. We have overhead, we are non- recourse, so if the client loses, we lose, and our cost of operation is way beyond a bank's. So what should the interest rate be?" Dudley says his fees only become problematic if the case goes on for a long time. "After three or four or six or seven years, interest becomes an issue, especially if the case also settles for less than expected." He claims Rhino has no hidden fees. Peo- ple pay from 1.65-per-cent to 2.95-per-cent interest per month, plus a five- to 10-per-cent loan application fee. Dudley does not believe his industry has a bad reputation, and like Pauwels, says he is providing a service no one else will. NOT ON THE REGULATORS' RADAR C anada's various law societies have little to say about third-party loans. Both the Law Society of British Columbia and the Law Society of Upper Canada say these loans are not specifically mentioned in the rules and regulations governing lawyers and the prac- tice of law. Barbara Buchanan, a practice adviser at the LSBC, says, "lawsuit loans made by third parties that are independent and unrelated to the lawyer are not specifically mentioned in our rules and guidelines. However, Chapter 7 of the Professional Conduct Handbook refers to ethical obligations related to lawyers lending money to clients or even acting for a client if anyone, including a relative, partner, employer, employee, business associate, or friend of the lawyer, has a direct or indirect interest that would reasonably be expected to affect the law- yer's professional judgment." Malcolm Heins, CEO of the LSUC, says it "regulates Ontario's lawyers and paralegals in the public interest and does not regulate loan companies." Heins adds that reported cases do not show that litigation lending is an area that has attracted complaints. "The [society's] access-to-justice committee is monitoring this in order to keep apprised of any development in the context of the Canadian litigation sys- "WE HAVE OVERHEAD, WE ARE NON-RECOURSE, SO IF THE CLIENT LOSES, WE LOSE, AND OUR COST OF OPERATION IS WAY BEYOND A BANK'S. SO WHAT SHOULD THE INTEREST RATE BE?" BYRON DUDLEY, RHINO LEGAL FINANCE tem, but is not currently studying the topic of third-party litigation funding." PROS AND CONS nesses offering small loans at reasonable rates, what is the problem? Ron Kalish can answer that question, and it has nothing to do with high interest rates. S Untitled-3 1 Experts in damages quantification, business valuation and forensic accounting. Farley Cohen Ross Hamilton Peter Steger Paula Frederick Prem Lobo cohenhamiltonsteger.com 416 304 1595 www.CANADIAN Lawyermag.com N O VEMBER / D ECEMBER 2011 37 11-10-20 12:36 PM o if the law societies do not expressly forbid or regulate litigation loans, and if there are seemingly legitimate busi-