Does Consumer Legal Funding Put Consumers in Debt?

There has been a lot of discussion if Consumer legal funding is a loan and thereby creates debt for a consumer Consumer legal funding, sometimes called litigation funding or lawsuit funding, provides cash upfront to plaintiffs, to be used for household needs, which are involved in legal proceedings in exchange for a portion of the eventual settlement or judgment. It doesn’t create debt like a loan from a bank or credit card, these distinctions contribute to its classification as a unique financial product rather than a loan or debt.

  • Non-recourse nature: Unlike loans, where the consumer is personally liable for repayment regardless of the outcome, consumer legal funding is non-recourse. This means that if the plaintiff loses their case, they are not obligated to repay the funding. The repayment is contingent upon the success of the lawsuit.
  • No monthly payments: In a loan, borrowers usually make monthly payments to repay the principal amount plus interest. With consumer legal funding, there are usually no monthly payments required. Instead, repayment only occurs if and when the case is settled or won, and the repayment is often structured as a lump sum.
  • Risk sharing: Consumer legal funding providers assume a significant amount of risk by providing funds to plaintiffs who may not ultimately win their case. Unlike lenders who typically assess creditworthiness and require collateral, consumer legal funding companies evaluate the strength of the case and base their decision on the likelihood of success and not the creditworthiness of the consumer.
  • Not regulated as loans: Consumer legal funding is often subject to different regulations than loans. While loans are typically governed by banking and lending laws, consumer legal funding has its own set of regulations that ensures consumers are protected and the product is offered in a responsible manner.

Some of the other key differences between consumer legal funding and debt from a loan is in how repayment works. With a loan, the consumer borrows money and agrees to repay it with interest, regardless of the outcome of the situation, creating debt. However, with consumer legal funding, repayment is contingent upon the success of the case. If the consumer loses their case, they will not have to repay the funding. But if they win, they will have to pay back the amount funded, with fees that are known upfront.

So, therefore consumer legal funding doesn’t create debt. Unlike Consumer legal funding, some loans can put consumers in a cycle of debt.

The term cycle of debt refers to a pattern where individuals or households become trapped in a recurring pattern of borrowing money to meet financial obligations, only to find themselves in even greater debt over time. This cycle often involves:

  • Initial Borrowing: The cycle typically begins with an initial borrowing of money, such as taking out a loan, using a credit card, or obtaining other forms of credit to cover expenses or emergencies.
  • Accumulation of Interest and Fees: As time passes, the borrower may struggle to make timely payments on their debts, leading to the accumulation of interest charges, late fees, and other penalties.
  • Financial Strain: The increasing debt burden can put a strain on the borrower’s finances, making it difficult to cover basic living expenses and other financial obligations.
  • Additional Borrowing: To address their financial difficulties, borrowers may resort to additional borrowing or using high-cost forms of credit, such as payday loans or cash advances, to make ends meet.
  • Repayment Challenges: The cycle continues as the borrower struggles to keep up with mounting debt payments, leading to further financial stress and the need for more borrowing.
  • Escalating Debt: Without significant changes in financial habits or circumstances, the debt continues to escalate, with the borrower owing more money than they can realistically repay.

Breaking the cycle of debt often requires proactive steps such as budgeting, reducing expenses, increasing income, seeking financial counseling, and finding ways to pay down debt strategically. It may also involve negotiating with creditors, consolidating debts, or exploring debt relief options such as debt settlement or bankruptcy.

Consumers who use Consumer legal funding are never placed in a cycle of debt. Consumer legal funding has many other positives to a consumer besides not placing them in debt.

  • Immediate Financial Assistance: Consumer legal funding provides plaintiffs with immediate cash to cover living expenses, medical bills, legal fees, and other costs associated with their lawsuit. This can be particularly helpful for individuals facing financial hardship due to their inability to work or other circumstances related to their legal case.
  • Non-Recourse: Consumer legal funding is non-recourse, meaning that if the plaintiff loses their case, they are not obligated to repay the funding. This reduces the financial risk for the plaintiff, as they only repay the funding if they win their case.
  • Leveling the Playing Field: Consumer legal funding can help level the playing field in legal disputes by providing plaintiffs with the financial resources to pursue their case effectively. This is particularly beneficial for individuals who are up against well-funded defendants or corporations.
  • No Upfront Costs: Unlike loans, consumer legal funding does not require upfront payments or monthly repayments. Instead, repayment is structured with a known outcome and amount.

Overall, consumer legal funding can be a valuable resource for plaintiffs in need of financial assistance during legal proceedings without putting them in debt.

Let’s Set The Record Straight: Consumer Legal Funding is Not Litigation Finance

Consumer Legal Funding, in its various forms, is pretty mundane. It covers living expenses, such as rent, food, clothes and keeping the lights on. It might even enable a family to provide Christmas or birthday gifts for their children. In every case, its sole purpose is to help individuals and families alleviate the cash-flow problems that arise in the wake of an accident or other tragic circumstances, while the individuals and families are seeking compensation for their situation. It has nothing to do with financing of the litigation.

What is happing is that groups and individuals who are not taking the time and effort to know the differences between the two different products and are lumping them together. They are saying all transactions where a party to litigation receives any monetary resources from a non-party are considered Third Party-Litigation- Financing (TPLF). It paints a bleak picture of “foreign adversaries . . . undermining U.S. national economic and security interests through the infiltration of the American litigation system,” and it is the end of the free world as we know it.

Consumer Legal Funding is nothing like that, it helps a consumer meet their financial obligations while their legal claim is making its way through the justice system. It does not pay for deposition cost. It does not pay for legal fees or expenses.

Most of the time the funds go to help a consumer who has had a car accident bridge the financial gap, but there are other times where it goes to help a person who was wrongfully convicted and spent nearly two decades of their life in prison for a crime they did not commit. Consumer legal funding helped them get their life back in assisting with living expenses while they got the justice they so justly deserved.

It helped a Police Officer pay to keep a roof over their family’s head while they had their day in court after being wrongfully discharged.

Then the case of a single mother of three who was going back to college to make a better life for her children and had to move out of their home because of a toxic mold infestation. She used consumer legal funding to pay for a mobile home so she and her three children could live in a safe, toxic-free, environment while the situation was fixed.

There is the case when a 16-year-old was made a quadriplegic due to medical negligence. The family had to modify their home to make accommodations to care for their loved one. Consumer legal funding was the only way they were able to take care of their teenager while the case made its way through the long legal system.

Another was a woman was involved in a car accident and her teeth were shattered because of the accident. She used consumer legal funding to get a new set of teeth. She said, “it gave me my smile back”.

Finally, there have been times where consumer legal funding was used to help pay for funeral expenses of a loved one that was tragically killed in an accident. Sadly, some families had no other means of taking their loved one to their final resting place if it had not been for consumer legal funding.

But what is happening are those groups and individuals that do not take the time, or want to take the time, to learn what consumer legal funding really is. They hear terms like, “corrupting the legal system”, “leads to filing frivolous litigation” and the latest is “foreign governments are leading to international sabotage of our courts”. Then charge ahead saying “the sky is falling; the sky is falling”.

  • How does giving money to a single mother so she can have her children live in a toxic free environment lead to “international sabotage”?
  • How does allowing a person who spent nearly 2 decades of their life living in 48 square foot space corrupting the legal system?
  • How does allowing a person to get their smile back lead to frivolous litigation?

Litigation Financing is just that “financing of the litigation”. It is used to pay for lawyers. It is used to pay for depositions. It is used to pay for expert witnesses. It is used to pay court costs. None of which consumer legal funding does.

In fact, in the legislation that we have promoted we specifically state the funds we provide to a consumer cannot be used for those purposes. Don’t be fooled by someone who is throwing out buzz words that make one think we are on the brink of judicial destruction by confusing Consumer Legal Funding with Litigation Financing.

They both may be fruit. But one is an apple and one is an orange.

Missouri Governor Parson signs comprehensive legislation regulating Consumer Legal Funding

Jefferson City, MO,—Missouri Governor Michael Parson signed an omnibus bill, SB 103, containing sweeping new regulations for the growing industry of consumer legal funding—bringing meaningful oversight of provider companies for the first time in the state’s history.

Missouri now joins several states, like Oklahoma, Nebraska, Ohio, Utah, Nevada, Vermont, Tennessee, Indiana, and Maine, who have acted to enact consumer protections while preserving consumer choice.

Consumer legal funding—also known as pre-settlement funding—is a specialty financial service that allows plaintiffs pursuing a legal claim to sell part of the potential proceeds of the claim for cash now. Unlike a loan, there is no obligation to the funding company if the consumer does not have a successful outcome in their claim. And because it’s the sale of an asset, it can’t affect a person’s credit or put them into collections. This legislation ensured that it will be treated as a consumer asset.

“Consumer legal funding is a financial lifeline to those engaged in civil litigation who lack savings. Governor Parson giving his approval to this legislation is a win for robust consumer protections and protecting access to legal funding in Missouri.” Stated Missouri State Representative Phil Christofanelli

Missouri State Senator Sandy Crawford stated “I am pleased that we were finally able to take the Consumer Legal Funding legislation across the finish line.  Although this process has taken several years, I am confident the finished product was worth the time it took.  I was happy to play a role in passing this important legislation.”

“Consumer legal funding is different from a lot of other financial products. It allows a consumer to get the financial assistance they need while their claim is making its way through the legal system.” said Eric Schuller, President Alliance for Responsible Consumer Legal Funding, the Trade Association that represents the companies that offer Consumer Legal Funding. 

Missouri State Senator Curtis Trent stated: “I appreciate the Governor’s support.  This measure will ensure that Missourians have better access to the financial resources they need to protect their rights in Court.”

Schuller said, “this is well-researched legislation we’ve seen comes out in the last few years. It’s sure to serve as a model for other states in the years to come. This is good lawmaking in action—a trend which should continue.”

The Alliance for Responsible Consumer Legal Funding (ARC) Statement Regarding the Minnesota Supreme Court Decision Maslowski v. Prospect Funding Partners, LLC, et al. v. James Schwebel, Esq., et al.

“We are very pleased that the Minnesota Supreme Court took its time in rendering a thoughtful decision in this matter and, once again, held that the consumer legal funding contract at issue was enforceable. The decision is consistent with what courts and legislatures have said across the country, that this product is not a loan and should not be treated as such,” stated Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding. “Following the Court’s logic in its June 2020 opinion that the transaction did not violate the common law prohibition on champerty, the Court today correctly recognized that, “A repurchase rate in a litigation financing agreement is not subject to Minnesota’s usury law” This well-reasoned decision joins others across the country in the growing consensus that consumer legal funding transactions are not loans and should not be treated like loans.”

OPA211338-082323.pdf (

What does Artificial Intelligence (AI) say about Consumer Legal Funding?

There has been a lot of interest in ChatGPT and similar AI technologies. People and organizations are using this technology answer questions, to help with research and just learn about what’s what’s….

Recently we typed in the following questions and the responses were interesting.

What is Consumer Legal Funding?

Consumer legal funding is a form of alternative financing for individuals who are pursuing a legal claim and need cash before their case settles. It provides a cash advance against the potential settlement or award in the case, allowing individuals to pay for necessary expenses while they wait for their case to be resolved.

Is Consumer Legal Funding a loan?

Consumer legal funding is not a loan, but rather a cash advance against a future settlement or award in a legal case.

What is Consumer Legal Funding used for?

Consumer Legal Funding is a type of financial product used to provide immediate cash to individuals who are pursuing legal claims. It is typically used to cover the costs of legal expenses such as attorney fees, expert witness fees, and other court-related costs. The funding is typically secured against the potential settlement or award from the legal case.

Does the Property and Causality insurance industry like Consumer Legal Funding?

The property and casualty insurance industry generally does not have a favorable view of Consumer Legal Funding. They see it as a potential obstacle to their goal of resolving claims as quickly and efficiently as possible. By providing funding for individuals to pursue legal action, Consumer Legal Funding can prolong the legal process and increase the overall cost of settling claims. The insurance industry may also view Consumer Legal Funding as a threat to their bottom line, as it can make it more difficult for them to settle claims quickly and inexpensively.

What is the difference between consumer legal funding and litigation financing?

Consumer Legal Funding and Litigation Financing are similar in that they both provide funding to individuals pursuing legal claims. However, there are some key differences between the two.

Consumer Legal Funding is specifically targeted towards individual consumers, while Litigation Financing is available to both individuals and businesses.

Consumer Legal Funding is typically secured against the potential settlement or award from the legal case, while Litigation Financing can involve a more complex financial arrangement, such as a stake in the outcome of the case.

Consumer Legal Funding is usually more expensive than traditional forms of lending, due to the higher risk involved. Litigation Financing can be even more expensive, as it typically involves a higher degree of risk and a more complex financial arrangement.

In summary, Consumer Legal Funding and Litigation Financing both provide funding for legal cases, but Consumer Legal Funding is targeted towards individual consumers and is typically secured against the potential settlement or award from the case, while Litigation Financing can be available to both individuals and businesses and can involve a more complex financial arrangement.

If an Artificial Intelligence Robot knows the truth behind Consumer Legal Funding and how it works.

Then why don’t those who try to put major restrictions on it and even try to put it out of business do?

Equal Justice Under Law

In a recent 60 Minutes piece on Litigation Funding they discussed both Commercial Litigation Funding; where the funds are used to pay for the legal/litigation process, and Consumer Legal Funding; where the funds are provided to the consumer for their household needs, such as rent, mortgage and putting food on the table.

One of the issues that was brought out in the story is that the industry is largely unregulated. What is interesting is that from 2005 to 2022 thirty-seven (37) states have introduced legislation to regulate the Litigation Funding.

But whenever the industry tries to introduce such legislation, we are hit with major opposition from our detractors. They oppose any regulation because it “legitimized the industry”. Are they saying that an industry that allows consumers to financially survive while their legal claim makes its way through the legal process is illegitimate?   Or are they saying that a company that is trying to level the playing field for consumers should not be allowed to operate?

In fact they have tried to outright ban the practice in several states. How is a ban regulation?

The Alliance for Responsible Consumer Legal Funding (ARC), and its member companies, have always supported, and in fact encouraged, proper regulation of the industry. From the beginning ARC has set up a strong set of Best Practices that ensured the both the consumer and the companies are protected. We have strived to have those Best Practices put into legislation in states like in Nebraska, Ohio, Oklahoma, Utah, and Vermont to name a few.

Consumer Legal Funding allows everyday citizens to get the fair value of their legal claims while they are making their way through the complicated legal process.

Access to Justice should not depend upon who has the deepest pocket. It should be on the merits of the legal claim.

Remember what is written on the entrance to the United State Supreme Court


Pre-Settlement Legal Funding Benefits the Injured To Get More Settlement Money in Their Personal Injury Case

Personal injury accidents create a lot of problems beyond just the physical damage that you can see on the automobile that was involved in the accident. If you or a loved one have ever been seriously injured in a car crash or other type of personal injury accident, you understand the toll and hardship this can have on you, your family, and your friends. As a result of a personal injury, you may be dealing with both physical injuries and emotional anguish. To make matters worse, your injuries may be preventing you from working and leave you in a bind financially and at risk of permanently losing your job.

It isn’t fair to be dealing with physical, emotional, and financial challenges as a result of an accident that wasn’t your fault. Although it isn’t fair, unfortunately, this is the situation too many victims find themselves in.

If this is the situation you find yourself in, your first step should be to hire the best personal injury lawyer possible and see if you qualify to file a lawsuit against the person(s) or company that should be held financially responsible for your injuries. Fortunately, most personal injury law firms do not charge you for a consultation, and if they decide to take on your case, they typically will only charge you if they win a financial settlement for your case.

The Key to Your Financial Freedom

Getting a lawyer or legal firm to represent you as part of your personal injury lawsuit is key because it lets the insurance companies know you are serious about getting the compensation you deserve. Insurance companies will do their best to pay out as little as possible in the event of a claim, regardless of the severity or the extent of the damage. Hiring a personal injury attorney allows you to have someone advocating on your behalf, provide you with advice about your best treatment options, as well as help you get the response you need from an unresponsive insurance company.

Additionally, hiring an attorney to represent you in your personal injury accident claim opens the door for you to be eligible for pre-settlement funding. In order to qualify to receive an advance against your future settlement, most pre-settlement funding companies require you to have active representation by a personal injury law firm.

What is Pre-Settlement Funding?

Pre-settlement funding provides a plaintiff or injury victim with an advance against their future settlement. Unfortunately, insurance companies representing the at-fault parties in an accident typically will look after their financial interest first, rather than seeking to help the injured victim. As a result, getting a settlement can be a tedious and lengthy process leaving you responsible for managing the financial impacts of the accident on your own. This is where pre-settlement funding can be a tremendous asset and help.

In pre-settlement funding, the only item of benefit is the value of your pending personal injury lawsuit. As a result, pre-settlement funding companies do not require background checks, credit checks or any proof of ongoing income. This is a tremendous benefit considering being able to provide assets as collateral or a stable financial background can be a major stumbling block for many individuals seeking traditional bank financing.

It is important to know that pre-settlement funding is non-recourse, meaning you only have to repay the money advanced against your lawsuit if your attorney successfully wins your lawsuit. Additionally, when you win your case, your attorney handles paying back the funding provider out of your settlement, so you don’t have to worry about making the payment back to the funding company. If approved for funding, the process is very quick, and most pre-settlement funding companies will provide you with money within 24 to 48 hours.

More Time Means More Money

Pre-settlement legal funding provides you and your lawyer additional benefits outside of providing the money you need to pay your bills. As previously mentioned, insurance companies are often not looking out for your best interest. Not to mention, one of the many tactics at-fault insurance companies will try is to stall settling the case for as long as possible in hopes of the claimant taking a lower settlement amount to just get the case resolved and cash in their pocket. When personal injury victims are unable to withstand the financial pressures of an insurance company, clients are forced to settle prematurely and for less money than they deserve.

Getting pre-settlement funding provides financial relief for plaintiffs while giving their attorneys more time to work their case, ultimately increasing the payout amount. Data from the National Center for State Courts and the United States Department of Justice shows that most personal injury cases are resolved within 1-3 years. You may be able to make it financially for 12 months, but if forced to wait 24 -36 months for a settlement, depending on your situation, it could be unbearable.

The Benefits Are Clear

The benefits of pre-settlement legal funding for you as the victim and your lawyer are very clear. Pre-settlement legal funding provides the money you need right now to cover your ongoing expenses and provides your attorney the additional time they need to work your case, do the proper investigation, negotiate with the insurance company, or even possibly take your case to trial in order to maximize your payout amount, so you get the most money possible. Insurance companies frequently utilize financial pressures to get you to accept a settlement that is less than the case’s true value. Pre-settlement legal funding provides instant relief to your financial strains, allowing you and your attorney the proper amount of time needed to either continue negotiating with the insurance company or proceed to trial and get the highest payout amount for you.

Charles Price, CEO of Capital Now Funding

The State of Georgia is calling out Allstate for raising rates 40% and dragging out claims.

Allstate is under fire from Georgia regulators for using a loophole in Georgia law allowing them to raise insurance rates 40%. Not only is Allstate raising their rates, but they are also dragging out claims for years.

Check out the story for yourself. Allstate is taking advantage of insurance loophole, Georgia Insurance Commissioner says

This story illustrates why there is a need for Consumer Legal Funding. Consumer Legal Funding allows consumers to get the settlement that they deserve and not the one that the Insurance Industry wants consumers to get.  

Why Consumer Legal Funding is Needed Today More Than Ever

The opponents of consumer legal funding often say that consumers do not need this product. That they have several other options which they can tap into, and as such, are trying to put up barriers through the legislative process in limiting consumers’ ability to have access to this vital piece of financial stability.

What is interesting is that the barriers that are being put up are designed so that consumers will not have access to this product at a time when they need it most. There are pieces of legislation being introduced across the country that would fully ban the product. Other pieces of legislation would make it cost-prohibitive for companies to offer the product, thereby banning the product and not making it available to those who need it most.

A recent report it found the following:

  • 20% of American workers run out of money between checks
  • 68% do not have money set aside for emergencies
  • 51% have no emergency savings at all
  • 45% financially stressed

And, thanks to inflation, the average family will need $5,200 more this year than last just to meet basic needs. This is on top of the fact that the average personal injury case takes between 1 to 3 years to settle.

So I ask again, with the need for this product greater than ever, why are the opponents of the industry being so aggressive in wanting to limit this product? It is to do one thing: force consumers to accept low-ball settlements so they can increase their bottom line.

U.S. Supreme Court Justice Lewis Powell, Jr. once said, “Equal justice under law…it is perhaps the most inspiring ideal of our society. It is one of the ends for which our entire legal system exists…it is fundamental that justice should be the same, in substance and availability, without regard to economic status.”

Consumer legal funding gives consumers the ability to receive “Equal justice under law,” and get a fair and just settlement, as opposed to one that is forced upon them because of their financial circumstances.

What does “Social Inflation” and “The Man Who Shot Liberty Valance” have in common?

In the movie with John Wayne and James Stewart there is a famous line at the end of the movie, “When the legend becomes fact, print the legend

In other words when fiction becomes fact, print the fiction. That is what is happening with the insurance industry when they are talking about Consumer Legal Funding and Social Inflation.

In a recent paper titled: Social Inflation: What it is and why it matters it references  “litigation lending” as a cause for why there are increase to consumers for the cost of insurance. But the document that they are referencing is over a decade old that was written based upon information that was gathered on the internet three years before that. Not a single consumer legal funding company was directly contacted for the paper. All the data that was referenced was taken off websites. The information was not verified by outside sources. As we all know, information published on the internet is ALWAYS factual and TRUE

What they are saying is that the reason consumers are paying more for insurance is because of consumers getting financial help because the insurance industry is taking so long to settle the legal claim. So, let me get this right, the industry that is causing the problem, is blaming those who are solving the problem? This is like blaming your doctor because you fell and broke your arm.

In fact, the Consumer Federation of American published on the topic. The conclusion of the paper: How the Cash-Rich Insurance Industry Fakes Crises and Invents Social Inflation, states:

For five decades, businesses and consumers have been victims of periodic eruptions in insurance premiums caused by the property/casualty insurance industry’s economic cycle, the industry’s unique accounting methods, and laws that allow anti-competitive pricing by this industry. While insurers try to convince the public that lawsuits and juries, or “social inflation,” are to blame for this, historical data are clear that this has never been true – and it is not true today. The only way to stop volcanic eruptions in insurance premiums is through better oversight and regulation of the industry’s mismanaged accounting and the cyclical nature of the insurance business.

So, I guess the Insurance folks want you to live by the words of “The Man Who Shot Liberty Valance”, “When the legend becomes fact, print the legend”. They believe that eventually people will believe it is true if they say it with such authority and gusto. Remember what Elvis Presley once said, “Truth is like the sun. You can shut it out for a time, but it ain’t goin’ away.”