It does not take a genius to understand why usury laws endeavor to protect borrowers from unscrupulous lenders wishing to extract the maximum return on their investments.
Seeking a maximum return is not necessarily a bad thing. But the public realizes when people are put under financial pressure, they will agree to oppressive terms in an effort to avoid immediate pain. They would likely reason they can better deal with the consequences sometime in the future, hopefully, when their financial strength has increased.
Consider Pre-SettlementFunding transactions which exist to provide liquidity to litigants while they pursue their case. The cost of these agreements sometimes conflicts with certain peoples' notion of what is fair.
Opponents of Pre-Settlement Fundingliken pre-settlement cash advance transactions to usurious loans because they are sometimes referred to as case loans or lawsuit loans. Furthering the confusion is the use of interest charges in calculating the cost which are normally higher than traditional forms of lending.
There are major differences however, as discussed below.

Implied Repayment:
One obvious distinction involves the implied premise of repayment sometime in the future. Historically, to be considered a loan, there is the understanding that at some point, there will be repayment or else the contract is breached.
This characteristic does NOT apply to Pre-Settlement Funding contracts because there is no obligation to repay if there is no recovery in the case. These transactions are referred to as non-recourse cash advances because the party advancing the money has no recourse if the asset it purchases (the recovery) does not exist. That is, if the case is unsuccessful, there is no repayment and the borrower keeps the advance.
Sale of Property:
The most important distinction however, may be the fact that the Pre-Settlement Fundingcustomer actually has something of value to transfer in return for the money. That something is the potential proceeds of the lawsuit.
Contrast this to when a borrower enters into a traditional loan arrangement. In most instances, the borrower has no collateral or if he does, he is unwilling to part with it for some reason. One such reason could be the property of value is somehow illiquid or at the very least, difficult to find a buyer for.
In this sense, the Pre-Settlement Funding industry is simply providing liquidity to an otherwise illiquid asset.
Therefore, Pre-Settlement Fundingtransactions, although sometimes called lawsuit loans', are actually a sale of property rights in the proceeds of the lawsuit, if any. That means that ANY price is a fair' price for the sale of property when two willing parties agree to that price.
Critics:
Of course, there are always critics. And Pre-Settlement Fundingis no different.
Opponents might argue the exact purchase price is not known at the time of the funding contract because the purchase price depends on how long it takes for the lawsuit to reach a settlement. But this fact fails to brings the transaction outside a sale of property rights where two willing participants agree in advance to make a deal.
Even still, this argument is a distinction without a difference because the exact payoff amount IS listed on every Pre-Settlement Fundingcontract.
Although the payment terms are calculated based upon the amount of time between the time of the contract's execution and the lawsuit's resolution, the payoff is not left to chance. Instead, the contract breaks down what the payoff amount will be in each specific time period. Time is a variable but the potential payoff terms are still known at the time of execution.
Conclusion:
Lawsuit Pre-SettlementFunding is specialty finance. We are not talking about secured financing for homes or automobiles. Nor are we discussing unsecured debt on a credit card. In fact, we are not talking about debt or loans at all.
The transaction is structured as a sale of property rights in the future proceeds of a lawsuit. This is no accident but an intentional act designed to offer this particular service to the marketplace.
The Pre-Settlement Fundingbusiness simply provides an opportunity for participants to willingly explore their financial options as they pertain to the specialty asset that is, pending litigation. The fact that individuals and entities take advantage of the pre settlement funding option is an indication the industry is filling a legitimate need.