There is a reason settlement loans exist as an industry.
After an injury, victims have little or no wage replacement coverage. Employment Insurance will pay a maximum of $562 per week for 15 weeks if a doctor will certify the victim is unable to work. For victims who are not covered by EI and can prove they are permanently disabled can qualify for less than $240 per week from the Canada Pension Plan. Motor Vehicle Accident victims injured before April 1st received a maximum of $300 per week. Thankfully, that maximum is now $742 per week.
Even wage earners with full wage replacement insurance have difficulty with long periods of disability. Most plans only pay between 50 and 66% of pre injury earnings (although that is usually tax free). In the Lower Mainland, with high shelter costs for all levels of society, even a few weeks without full pay can be a financial disaster.
Accident victims with claims against ICBC, or another vehicle insurer, have often had to seek out settlement loans. Established finance companies such as Rhino Legal Finance, Bridgepoint Financial Services and Easy Legal Finance will lend between $500 and $50,000 to help seriously injured motor vehicle accident victims wait out a settlement. These loans can prove critical when the insurer offers a victim a fraction of the value of their case and then waits to try and starve them into settling.
However, settlement lenders often charge very high rates, between 16% and 30%. Most also compound interest monthly, meaning after each successive month, interest is charged on the interest built up over the previous month. That way, loans outstanding more than a year and a half will double (or more) in cost. Victims who recover less than they expected can end up with little or no settlement after paying the lender, particularly with large loans held open for long periods.
For this reason, it has always been best to borrow from a line of credit secured against property (even an unsecured line of credit) or family members.
Now, the risk of a settlement loan is even higher. The BC government changed the Insurance (Vehicle) Act May 17th, 2017 in a way that may allow ICBC to deduct any settlement loan from a victim’s settlement.
S. 67.1 of the new Insurance (Vehicle) Act Regulations reads:
|Copyright (c) Queen’s Printer, Victoria, British Columbia, Canada B.C. Reg. 447/83 O.C. 1897/83|
Limit of liability — loans and advance payments
67.1 For the purposes of section 83 (1) (c) of the Act, the prescribed circumstance is that
(a) a person has a claim for damages respecting a loss or expense similar to a loss or expense covered by benefits within the meaning of section 1.1 of the Act,
(b) the person receives a loan or an advance payment in relation to the loss or expense, and
(c) the person must repay the loan or advance payment, in full or in part, if the person receives or is entitled to receive an award of damages, or enters into a settlement, in relation to the claim.
When you read this section with s. 83 (1)(c) of the Insurance (Vehicle) Act, it makes it clear that s. 67.1 refers to deductions ICBC can make for wage replacement or other benefits from the amount of a settlement. ICBC has always been able to deduct from a wage loss settlement EI or other benefits which don’t have to be repaid to the source, in order to prevent double recovery. For example, you shouldn’t be able to receive wage replacement benefits and a wage loss settlement that covers the same period.
Lawyers believe that s. 67.1 originated as a means of preventing wage replacement insurers from calling benefits a “loan.” Many policies run by unions and low cost insurance companies say “if the beneficiary is injured by an insured party, monthly benefits become a loan and must be repaid from any settlement” or words to that effect. ICBC does not want to, in effect, pay back another insurance company for benefits a victim has contracted and paid for.
The problem is that the wording seems to capture any kind of settlement loan from finance companies, or even family members. The courts have yet to test whether ICBC can deduct a true loan amount from a settlement. I have not had my clients asked by ICBC: “Do you have a settlement loan?” However, one can imagine what a disaster it would be if a victim borrowed from a settlement lender, at a high rate of interest, and then ICBC deducted the loan, and interest from the settlement.
Until s. 67.1 is clarified or repealed, it is all the more important to borrow from a bank line of credit which can’t be tied to the settlement. In my opinion, a line of credit loan would never be caught by s. 67.1. Even if you don’t have a line of credit and you are injured, you can approach a bank soon after an accident, when you still have healthy recent income, and still qualify for a loan. However, the longer you wait, and the more likely that it seems you will be off work long term, the less likely a bank will risk lending you money, unless you own real estate. If you do need to resort to a non-bank lender, like a family member, make it a straight loan, rather than a loan secured on the proceeds of settlement.