New York State has a new law that regulates the industry that provides consumers with funds for living expenses while their legal cases are in process in exchange for a share of any settlement or judgment.<\/p>\n
Under such contracts, consumers only pay back the loan if they win their case but the interest rates and charges on the funds are often high. The new law caps what these lenders may take from any settlement or judgment.<\/p>\n
Titled the Consumer Litigation Funding Act (Assembly Bill A804-C\/Senate Bill S.1104A), the new law sets forth mandatory contract and disclosure requirements that are meant to ensure that consumers are fully aware of what is in the contracts.<\/p>\n
Consumer litigation funders typically offer cash advances for living expenses such as medical, rent, food, and utility bills to people with personal injury, torts or employment lawsuits.<\/p>\n
Sponsors of the measure said it is needed because as the financing industry has grown, several \u201cbad actors\u201d have charged exorbitant fees and engaged in other bad practices.<\/p>\n
The law caps a consumer litigation funding company\u2019s recovery to a maximum of 25% of the gross recovery of the litigation and prohibits enforcement of prepayment penalties.<\/p>\n
The law also requires that all litigation funding contracts be in plain language and guarantee consumers a 10-day right of rescission.<\/p>\n
It instructs that these third party funding companies may not influence settlement decisions, mislead consumers through advertising, or refer clients to specific attorneys or medical providers.<\/p>\n
The act was signed into law on December 19, 2025 by Gov. Kathy Hocul and will take effect 180 days later in June. It will not apply to any contracts agreed to before its effective date.<\/p>\n
The American Legal Finance Association (ALFA) welcomes the law, claiming that it \u201cestablishes clear, statewide standards for transparency, fairness, and accountability in New York\u2019s legal funding industry while preserving access to justice for individuals pursuing legal claims.\u201d<\/p>\n
The new law only addresses consumer litigation funding, not the higher-profile commercial litigation or law firm funding, which have been criticized by insurers for contributing to lawsuit abuse and driving up awards and insurance costs. Commercial litigation financing is often backed by private equity firms, hedge funds, specialized finance companies, or even high-net-worth individuals.<\/p>\n
New York\u2019s consumer finance companies must now submit a registration application to the state and be evaluated on their character, fitness, and financial stability. The application must include a bond and be approved by the state prior to a certificate of registration being issued.<\/p>\n
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