The Dangers of Settlement Loans: Lessons from McCourt Law Offices v Downes, 2025 ABKB 268

Kelly Tang

In the realm of personal injury litigation, financial strain often compels plaintiffs to seek immediate monetary relief. Settlement loans, offered by third-party lenders, provide such relief by advancing funds against the anticipated proceeds of a lawsuit. However, the recent Alberta Court of King’s Bench decision in McCourt Law Offices v Downes, 2025 ABKB 268 serves as a cautionary tale about the potential pitfalls of these financial arrangements.

Understanding Settlement Loans

Settlement loans are non-recourse advances provided to plaintiffs involved in ongoing litigation. These loans are repaid from the settlement or judgment amount, often with high interest rates and fees. While they offer immediate financial support, they can significantly erode the plaintiff’s net recovery.

McCourt Law Offices v Downes

In this case the plaintiff, Ms. Downes, obtained settlement loans totaling $4,000, secured against the proceeds of a 2016 personal injury action she brought seeking compensation arising from a motor vehicle accident. The lender, Settlement Lenders Inc. (which had been acquired by Easy Legal Finance Inc. by the time of this hearing) charged $1,625 in fees and administrative costs, and as such the total principal owed by Ms. Downes was $5,625.  The terms of the loan were that interest would be charged at 19.95% per annum compounded monthly for the first year, and 29.95% per annum for each additional year.

The loans were obtained in 2016 and 2017, and by the time Ms. Downes’ personal injury lawsuit settled in 2024, Ms. Downes owed a total of $47,007.76 to Easy Legal Finance, nearly 12 times the amount she borrowed. The sole issue before the Court was whether the terms of these loans were unconscionable.

As set out by the Supreme Court of Canada in Uber Technologies Inc v Heller, 2020 SCC 16, two elements must be present for a transaction to be unconscionable:

1. An inequality of bargaining power; and
2. An improvident bargain, or in other words, unfairness.

Ms. Downes was highly intelligent, having earned a Bachelor of Arts in Criminal Justice. She had been accepted into a Masters degree program and RCMP Officer Training Program. Nonetheless, Ms. Downes applied for the loans out of financial desperation. She had been on disability benefits for 9 years, was seriously injured, and did not receive independent legal advice respecting the loans (though she apparently received legal advice with respect to a separate set of settlement loans obtained months prior to the loans at issue). Due to her vulnerable personal circumstances and because she entered into the loan agreements out of necessity, the Court found that there was an inequality of bargaining power in this case.

The Court also concluded that the loan agreements were unfair. They differed from traditional settlement loans because the lender had the ability to demand repayment while Ms. Downe’s lawsuit was being litigated, and because the loan agreements required Ms. Downes to grant a charge against any of her real or personal property. Further, the Court found that if Easy Legal Finance Inc. would be unduly enriched if they received interest at the agreed upon rates. Ms. Downes’ suggested that simple rather than compounding interest should be owed, and the Court agreed, reducing the interest owed on the principal of $5,625.00 from $41,282.76 to $11,734.68.

This decision highlights the potential for settlement loans to undermine a plaintiff’s financial recovery. For those looking for financial relief while going through the litigation process, settlement loans should be approached with the upmost caution, and loan terms should be carefully scrutinized and reviewed with a lawyer before proceeding. Although Easy Legal Finance Inc. took the position in this case that their interest rates conformed with the usual market price, the Court found that the settlement loans at issue were unique and that there is no usual market price for them.