Consumer Legal Funding Regulation Addresses the Conduct Identified in ATRA’s RICO Report

October 7, 2026/in Blog /by Eric Schuller

Rebuttal to the Litigation Financing Discussion in ATRA’s October 1, 2026 Report

Introduction

The American Tort Reform Association’s October 1, 2026 report, Turning the Tables? The Growing Use of Civil RICO Actions by Businesses and Insurers to Respond to Suspected Fraudulent Litigation, raises serious allegations concerning fraudulent personal injury claims, staged accidents, improper referrals, and the involvement of certain litigation funders in alleged fraudulent schemes.

Fraud should be investigated and prosecuted wherever it occurs. The Consumer Legal Funding industry has no interest in defending staged accidents, fabricated claims, kickbacks, improper referral arrangements, or anyone who knowingly participates in fraudulent conduct.

Where the ATRA report goes too far, however, is in allowing allegations involving certain actors to create the impression that such conduct is inherent to Consumer Legal Funding. It is not. In fact, the modern regulatory framework governing Consumer Legal Funding increasingly prohibits the very conduct described in the report.

The Report Uses an Overly Broad Definition of Litigation Funding

A fundamental problem with the report is its use of the broad term “litigation funding.”

Consumer Legal Funding is a specific financial product. A consumer with an existing legal claim may receive non-recourse funds for personal and household expenses while the claim is pending. Repayment is contingent upon a recovery. If the consumer receives no recovery, the consumer has no obligation to repay the funding company.

Consumer Legal Funding does not finance the prosecution of litigation. Its purpose is to provide consumers with financial assistance for ordinary household needs while they wait for their legal claims to be resolved.

That distinction is important because the ATRA report discusses a broad range of alleged conduct under the general heading of “litigation funding” without adequately distinguishing legitimate Consumer Legal Funding from other financial arrangements.

New York Now Expressly Prohibits Much of the Conduct ATRA Describes

This distinction is especially significant because many of the examples in the ATRA report involve New York and conduct allegedly occurring before New York adopted its comprehensive statutory framework governing litigation funding.

New York law now establishes clear boundaries governing the relationship between a Consumer Legal Funding company, a consumer, and the consumer’s attorney.

Among other protections, the law prohibits improper referral-fee arrangements involving funding companies and attorneys or law firms. It also prevents funding companies from improperly steering consumers to particular attorneys.

New York goes further. A litigation funding company may not influence or attempt to influence decisions concerning the conduct, settlement, or resolution of the consumer’s legal claim. Those decisions remain exclusively with the consumer and the consumer’s attorney.

The law also restricts the use of Consumer Legal Funding monies for the costs of prosecuting the underlying legal claim.

Most significantly in light of ATRA’s allegations concerning fraudulent litigation, New York prohibits a company from entering into a funding contract when it has a reasonable basis to believe that the underlying claim is frivolous, based upon false facts, or otherwise lacks merit.

The result is straightforward: the type of coordinated participation in fraudulent litigation portrayed in portions of the ATRA report is not a permissible business model for a regulated Consumer Legal Funding company operating under New York’s current law.

The Alleged Referral Networks Are Specifically Addressed

Several of ATRA’s allegations depend upon relationships among those who generate claims, attorneys, funding companies, and consumers.

Modern Consumer Legal Funding statutes are specifically designed to separate these functions.

Under New York law, a funding company cannot pay an attorney or law firm for sending it a consumer. It cannot accept improper compensation in return for referrals. It cannot steer the consumer to a particular lawyer. And it cannot control the underlying legal claim.

These are not simply disclosure requirements. They are substantive restrictions designed to prevent a funding company from becoming an active participant in generating or controlling litigation.

That is an important distinction missing from the ATRA discussion.

Providing a consumer with non-recourse funds for rent, utilities, groceries, transportation, and other household expenses is fundamentally different from participating in the creation or prosecution of a lawsuit.

Other States Have Adopted Similar Safeguards

New York is not an isolated example.

Kansas HB 2518 provides an especially clear illustration of the direction states are taking. Kansas prohibits a Consumer Legal Funding company from paying or accepting certain referral fees, influencing the conduct or settlement of the underlying claim, and using Consumer Legal Funding monies to pay court costs, filing fees, or attorney fees.

Most importantly in responding to the allegations raised by ATRA, Kansas expressly prohibits a funding company from colluding with or knowingly assisting an attorney or law firm that is enticing a consumer to bring a claim the company knows, or has reason to know, is fabricated or otherwise not brought in good faith.

The Kansas statute also draws an important definitional line. Consumer Legal Funding is funding used for personal or household expenses. It is not funding for expenses directly related to prosecuting the consumer’s legal claim.

Ohio’s HB 105, effective October 6, 2026, follows the same general regulatory approach. Ohio establishes protections addressing improper referral relationships, funder interference with the underlying legal claim, and collusion involving fabricated claims.

These statutes demonstrate an important point missing from the ATRA narrative: policymakers are not ignoring potential abuses. States are creating regulatory boundaries specifically designed to separate legitimate Consumer Legal Funding from fraudulent claims, improper referrals, attorney conflicts, and funder control over litigation.

Consumer Legal Funding Does Not Finance Litigation

The distinction between funding a consumer and funding litigation itself is essential.

Legitimate Consumer Legal Funding provides consumers with funds for personal and household needs such as rent or mortgage payments, utilities, groceries, transportation, and other everyday expenses while a legal claim is pending.

The product does not exist to pay lawyers or finance the prosecution of litigation.

That distinction is particularly relevant to ATRA’s suggestion that litigation funding provides a financial infrastructure capable of “underwriting and scaling questionable litigation practices.”

Providing $3,000 to $5,000 in non-recourse funds to an individual consumer for household expenses is fundamentally different from financing a lawsuit.

The consumer must already have a pending legal claim and be represented by an attorney. The funding company does not create the claim, prosecute the claim, control the attorney, or determine whether the consumer accepts a settlement.

Conflating these activities creates a misleading picture of what Consumer Legal Funding actually is.

ATRA’s Own Report Recognizes the Role of State Regulation

Significantly, ATRA’s report itself acknowledges that states are responding legislatively.

In its “Legislative Interventions” section, the report recognizes that a growing number of states have enacted laws regulating litigation funding practices.

That acknowledgement is important.

The appropriate policy response to improper conduct is exactly what states such as New York, Kansas, and Ohio have done: establish clear rules defining Consumer Legal Funding, prohibit improper relationships and conflicts, preserve attorney and consumer control over legal claims, establish enforcement mechanisms, and punish companies that violate those requirements.

The existence of allegations concerning past misconduct is not an argument against regulation. It demonstrates why regulation matters.

Regulation Creates a Bright Line

There should be broad agreement over several fundamental principles.

A Consumer Legal Funding company should not participate in staging an accident.
It should not knowingly fund a fabricated claim.
It should not pay someone to manufacture or generate a fraudulent claim.
It should not pay an attorney for referring a consumer.
It should not tell an attorney how to litigate a case.
It should not control whether a consumer accepts or rejects a settlement.
It should not provide funding when it knows, or has reason to know, that the underlying claim is fabricated or fraudulent.

Modern Consumer Legal Funding statutes increasingly make these boundaries explicit.

The important distinction, therefore, is not between litigation with funding and litigation without funding. It is between lawful Consumer Legal Funding and fraudulent conduct.

Fraudulent conduct does not become Consumer Legal Funding simply because money changes hands.

The Industry Should Be Judged Under Today’s Regulatory Framework

Many of the allegations highlighted by ATRA concern conduct that allegedly occurred before the enactment of today’s regulatory safeguards.

That timing matters.

It is misleading to rely upon historical allegations as evidence of what a regulated Consumer Legal Funding company is legally permitted to do today without acknowledging the significant statutory changes that have occurred.

New York now has a comprehensive statutory framework governing the industry. Kansas has enacted detailed Consumer Legal Funding legislation. Ohio’s HB 105 became effective October 6, 2026. Other states have likewise enacted Consumer Legal Funding laws establishing clear boundaries for industry conduct.

Those laws matter.

If a company violates them, regulators should enforce them. If someone stages an accident, fabricates an injury or claim, pays an illegal kickback, or knowingly assists fraudulent litigation, existing civil and criminal laws should apply.

But those acts should not be attributed to an entire regulated industry whose legitimate product is fundamentally different: providing non-recourse financial assistance to consumers with pending legal claims so they can meet ordinary household expenses while their cases proceed.

Conclusion

ATRA is correct about one fundamental point: fraud has no legitimate place in the civil justice system.

Where its analysis becomes incomplete is in failing to adequately distinguish alleged fraudulent conduct from regulated Consumer Legal Funding and in failing to fully account for how substantially state law has changed.

The allegations ATRA identifies do not demonstrate why Consumer Legal Funding should be restricted. They demonstrate why clear and enforceable regulation is important.

New York, Kansas, Ohio, and other states have increasingly drawn that line. Their laws prohibit improper referral arrangements, preserve consumer and attorney control over claims, address conflicts of interest, restrict the use of Consumer Legal Funding for litigation expenses, and, in some jurisdictions, expressly prohibit participation in fabricated or bad-faith claims.

The answer to fraud is enforcement against fraud.

It is not eliminating or restricting a legitimate financial product that allows an injured consumer to pay rent or a mortgage, keep the lights on, buy groceries, maintain transportation, and meet other household expenses while waiting for a legal claim to be resolved.

Consumer Legal Funding: Funding Lives, Not Litigation.

Consumer Legal Funding: A Free Market Solution for Financial Freedom

September 28, 2026/in Blog /by Eric Schuller

Introduction

Every day across the United States, families find themselves in unexpected financial hardship as the result of injuries caused by someone else’s negligence. While legal claims progress slowly through the justice system, rent is still due, the electricity bill arrives every month, children continue to need food, shoes, school supplies, and medical care does not pause simply because a lawsuit is pending.

The civil justice system promises fairness, but that promise is hollow if the injured party is forced to accept pennies on the dollar simply to survive. Especially when the process is slowed by the legal process.

Consumer Legal Funding (CLF) exists to counter that imbalance. It is a private/free market solution that gives individuals access to a portion of their potential recovery, typically a few thousand dollars, so they can cover essential living expenses while their case proceeds. Unlike government programs supported by taxpayers, CLF is funded entirely by private capital. Unlike loans, CLF is non-recourse, which means if the consumer does not win or settle their case, they owe nothing. It is a financial lifeline based on fairness, flexibility, and freedom.

The Free Market at Work

Healthy markets allow individuals to engage in voluntary transactions that improve their circumstances. CLF is built on that foundation.

A voluntary and informed choice
There is no mandate or coercion. Consumers decide whether CLF is right for them. They review terms, consult counsel, and make their own decisions., CLF agreements are entirely optional and are entered into only when they help a consumer meet their immediate needs.

Competition delivers innovation and consumer benefit
A growing number of responsible CLF providers operate nationwide. Each strives to deliver faster service, clearer disclosures, and a better customer experience. Competition encourages transparent terms, user-friendly technology, and individualized pricing models. This is capitalism at its most efficient: private entities solving public-impact challenges without taxpayer dollars.

The free market succeeds when individuals are empowered to use their own judgment. CLF gives families access to the resources they need without forcing them to sacrifice their legal rights for temporary relief.

Promoting Financial Freedom

Financial freedom is not the same as financial wealth. It is the ability to make choices based on fairness, rather than fear. CLF advances freedom in three fundamental ways:

Avoiding coerced settlements
When injured individuals cannot pay their bills, the other party tries to use time as leverage. A $30,000 claim may be settled for $3,000 simply because the consumer cannot wait. CLF gives consumers breathing room, enabling them to reject inadequate settlement offers and pursue full and fair compensation.
Preserving household stability
CLF funds are used for everyday necessities such as groceries, rent, gas, utilities, childcare, and car payments. These are real-world needs that cannot be paused while justice slowly unfolds. Importantly, CLF is prohibited by statutes in regulated states from being used to finance litigation. It supports lives, not lawsuits.
Empowering consumer choice
Government benefits often restrict how funds can be spent, creating dependency on strict bureaucratic qualifications. CLF respects personal autonomy. Once funded, the consumer decides how best to allocate the money to stabilize their household. The state does not decide. The consumer decides.

Ultimately, CLF is not about supplementing income. It is about protecting dignity. It prevents economic vulnerability from being weaponized.

Contrast With Government Intervention

Critics sometimes argue that individuals who need financial help should rely solely on public programs. But that position ignores reality.

Many families fall into eligibility gaps
Individuals with modest incomes often earn too much for public assistance but far too little to weather long gaps in wages caused by injury and recovery. CLF fills that void.
Taxpayers are not burdened
Public assistance is funded by citizens who may never benefit from the program. CLF, by contrast, relies solely on private capital. The people who use the service and the companies who provide it bear all financial risk and reward.
Speed matters
Government programs can take months to process. CLF providers can fund consumers within days. When eviction notices or utility shutoffs are looming, time is not an academic consideration, it is a crisis.

CLF supplements, rather than replaces, the social safety net. It prevents working families from being punished for earning slightly above a qualifying threshold.

Addressing Misconceptions

Opponents often conflate CLF with commercial third-party litigation funding. The difference is stark.

Feature	Consumer Legal Funding	Commercial Litigation Finance
Purpose	Household living needs	Costs of litigation
Users	Injured consumers	Corporations or law firms
Typical Funding Amount	$3,000 to $5,000	$3 million and above
Influence on Case	None permitted by law	Often negotiated as part of financing

States that regulate CLF explicitly prohibit any involvement by funders in litigation strategy or settlement decisions. The consumer, guided by their attorney, maintains full control of their legal claim.

The false narrative that CLF drives excessive litigation or nuclear verdicts collapses under scrutiny. CLF does not pay for attorneys, expert witnesses, or depositions. It is simply a personal finance tool made available when households face sudden financial strain.

Evidence From Regulated States

Experience from states that passed CLF consumer protection statutes demonstrates that responsible regulation and free market operations coexist successfully.

States such as Ohio, Maine, Georgia, California, Oklahoma, Utah, and Nebraska require:

Plain language contracts
Clear disclosures of terms
Prohibitions on legal interference
Consumer control over settlement decisions

These laws ensure transparency while preserving choice for consumers. There is no credible evidence in any regulated jurisdiction that CLF increases litigation frequency or costs. Instead, available data demonstrates that the only result of CLF is financial stability for thousands of families

Regulation, when tailored specifically to the CLF model rather than borrowed from unrelated lending laws, reinforces market fairness without destroying the service.

CLF as an Engine of Economic Justice

Economic justice requires more than legal rights. It requires the ability to exercise them.

Leveling the playing field
Those defending litigation often possess enormous financial resources. Injured individuals often have none. CLF allows consumers to stand on equal footing, to make decisions based on justice rather than necessity.
Preventing distress sales of legal claims
A personal injury claim is an asset. When someone is forced to take a low-ball settlement to keep a roof overhead, they are effectively selling that asset at a loss due to financial duress. CLF protects the value of that asset by giving consumers the ability to wait for fair compensation.
Protecting the integrity of the civil justice system
Justice delayed becomes justice denied especially when delay is weaponized. CLF converts time from a pressure tactic into a path to fairness.
Fueling local economies
CLF funds are spent immediately in local communities. Groceries are purchased from local stores. Rent is paid to local landlords. Utilities support local infrastructure. This spending circulates money to support jobs, economic activity, and stability.

Market-oriented consumer protections like CLF strengthen communities one family at a time.

The Broader Policy Significance

The CLF model offers valuable lessons for policymakers considering how best to support injured consumers and strengthen the civil justice system:

Families living paycheck-to-paycheck deserve financial options other than unsafe credit products.
Government resources are limited and cannot meet every financial hardship.
Private capital markets can solve real social challenges if allowed to operate responsibly.

When regulators respect the unique purpose of CLF and avoid forcing it into a lending framework where it does not belong, the product thrives and consumers benefit.

A Product Rooted in Responsibility

The CLF industry already implements responsible business practices, including:

Transparent contracts reviewed by consumers and their attorneys
Non-recourse funding where the funder bears full downside risk
No effect on a consumer’s credit score
Strong consumer dispute resolution structures

Consumer Stories Reflect the Purpose

A single parent injured in a car crash who has not been able to work for months has two choices without CLF: accept the first settlement offer, no matter how inadequate, or fall into financial ruin while waiting for justice.

With CLF, they gain a third option: survive the hardship while maintaining their rights.

CLF. Represents a chance for everyday Americans to reclaim control over their futures rather than being forced into desperation.

Conclusion

Consumer Legal Funding reflects the very best in a free and fair marketplace. It is rooted in voluntary exchange, priced according to real risk, and driven by competition designed to serve the consumer. It operates without taxpayer burden, without litigation interference, and without restricting personal decisions.

When individuals face sudden injury-induced financial hardship, CLF provides a lifeline that supports household stability and reinforces economic autonomy. It ensures that no one must sacrifice justice for survival. It guards against coercive settlement tactics that undermine the rule of law.

In short, CLF is not a speculative financial tool. It is a product that funds lives, not litigation. It enables consumers to maintain dignity, independence, and fairness when they need it most. CLF stands as an essential pathway to financial freedom and economic justice in America.

Funding Lives, Not Litigation

Consumer Legal Funding: Helping Families Meet Everyday Needs While Seeking Justice

April 20, 2026/in Blog /by Eric Schuller

When individuals pursue legal claims, they often enter a prolonged and uncertain process. Lawsuits can take months or even years to resolve, and during that time, injured consumers frequently face a difficult reality: the bills do not stop simply because their case is pending. Rent remains due, groceries must be purchased, vehicles require maintenance, and medical expenses continue to accumulate. For many, this creates a financial pressure that can force premature settlement decisions or even abandonment of otherwise valid claims.

Consumer legal funding exists to bridge that gap. By providing non-recourse funds to individuals with pending legal claims, it allows them to meet their daily needs without being compelled to accept unfair settlements. Far from being an abstract financial tool, consumer legal funding plays a deeply practical role in the lives of everyday people, helping them maintain stability during one of the most vulnerable periods they may ever experience.

Meeting Immediate Financial Needs

One of the most consistent themes among consumers who utilize legal funding is the ability to address urgent, unavoidable expenses. These are not luxury purchases or discretionary spending decisions. Rather, they are the essential costs of daily living.

For example, Brandon described how the funding he received allowed him to address an “unexpected car repair.” For many Americans, a vehicle is not optional. It is the means by which they get to work, attend medical appointments, and care for their families. Without reliable transportation, the financial strain of an injury can quickly compound into job loss or missed treatment.

Similarly, Shirley emphasized how the funding enabled her to “pay some bills,” noting that it was “very helpful.” This simple statement reflects a broader truth: when individuals are injured and unable to work, even routine financial obligations can become overwhelming. Utility bills, insurance payments, and basic household expenses do not pause while a case is pending.

Tasha shared a similar experience, explaining that the funds helped her “stay current on rent and keep food on the table.” Her words highlight the fundamental role that legal funding plays in preserving housing stability and ensuring that families can meet their most basic needs during uncertain times.

Reducing Stress and Providing Stability

Beyond the direct financial assistance, consumer legal funding plays a critical role in reducing stress. Financial insecurity is one of the most significant sources of anxiety, particularly when coupled with physical injury or legal uncertainty.

Gloria captured this impact powerfully, explaining that the funding helped “release so much stress.” When individuals are no longer consumed by the fear of missing rent or falling behind on essential expenses, they are better able to focus on recovery and the legal process itself.

Kinshota expressed a similar sentiment, sharing deep gratitude for the assistance she received and highlighting how meaningful the support was during a difficult time. These testimonials underscore that consumer legal funding is not merely transactional. It has a tangible emotional and psychological impact, allowing individuals to regain a sense of control over their circumstances.

Supporting Basic Household Needs

A key characteristic of consumer legal funding is how quickly the funds are put to use in local economies. Unlike other forms of capital that may be invested or saved, these funds are typically spent immediately on necessities.

Consumers consistently report using funding for:

Rent or mortgage payments
Groceries and household supplies
Utility bills such as electricity and water
Transportation costs, including fuel and repairs
Medical expenses not covered by insurance

This pattern demonstrates that consumer legal funding serves as a form of economic stabilization at the household level. It ensures that families can continue to function despite a temporary loss of income.

Preventing Premature Settlements

One of the most significant, yet often overlooked, benefits of consumer legal funding is its role in promoting fairness within the legal system. Without financial support, many plaintiffs face intense pressure to settle their cases early, often for far less than their claims are worth.

When individuals cannot afford rent or basic living expenses, the urgency of their financial situation can outweigh the merits of their case. This creates an imbalance, where defendants and insurers may benefit from a plaintiff’s financial distress rather than the strength of their legal position.

By providing access to funds, consumer legal funding allows plaintiffs to make decisions based on the merits of their case rather than immediate financial desperation. It helps ensure that justice is not compromised by economic necessity.

Maintaining Dignity During Difficult Times

Another important aspect of consumer legal funding is the preservation of dignity. Many individuals are reluctant to ask for help from friends or family, particularly when the amount needed is substantial or the timeline is uncertain.

Legal funding offers an alternative that does not require personal borrowing or the strain of interpersonal obligations. Because it is non-recourse, consumers are not required to repay the funds unless their case is successful. This structure provides peace of mind and removes the fear of incurring additional debt during an already challenging time.

For individuals like Shirley and Tasha, the ability to pay bills and maintain their households without relying on others can make a significant difference in preserving independence and self-respect.

Strengthening Local Economies

While the primary purpose of consumer legal funding is to assist individuals, its impact extends beyond the household level. Because the funds are typically spent immediately on necessities, they circulate directly within local communities.

When Brandon used his funding for a car repair, that money supported a local mechanic. When Shirley paid her bills, those payments flowed to utility providers and service companies. When consumers purchase groceries, they support local retailers and supply chains.

This circulation of funds creates a multiplier effect, where the initial financial support benefits not only the individual but also the broader community. In this way, consumer legal funding acts as a form of localized economic stimulus.

Providing a Lifeline During Recovery

In many cases, individuals seeking legal funding are also dealing with physical injuries. Recovery can require time away from work, ongoing medical treatment, and significant lifestyle adjustments.

During this period, the loss of income can be particularly devastating. Consumer legal funding provides a lifeline that allows individuals to focus on healing without the constant pressure of financial instability.

Gloria’s experience of reduced stress is especially relevant in this context. Recovery is not only physical but also mental and emotional. Financial security plays a crucial role in enabling a full and effective recovery.

A Tool for Financial Resilience

Consumer legal funding should be understood as a tool for financial resilience. It does not eliminate the challenges associated with injury or litigation, but it helps individuals navigate those challenges more effectively.

By addressing immediate needs, reducing stress, and preventing premature settlements, it empowers consumers to maintain stability during uncertain times. It allows them to move forward with their cases without sacrificing their basic quality of life.

Real Stories, Real Impact

The testimonials provided by consumers illustrate the real-world impact of legal funding in a way that statistics alone cannot capture.

Brandon’s ability to handle an unexpected car repair ensured that he could maintain mobility and independence.
Shirley’s relief in being able to pay bills highlights the importance of meeting everyday obligations.
Tasha’s ability to stay current on rent and provide food for her family underscores the essential nature of the support.
Kinshota’s gratitude reflects the meaningful difference the support made in her life.
Gloria’s reduction in stress demonstrates the broader emotional benefits.

Each of these experiences represents a person navigating a difficult period, and each underscores the essential role that consumer legal funding can play.

Conclusion

Consumer legal funding is often discussed in abstract or policy-driven terms, but at its core, it is about people. It is about ensuring that individuals facing legal challenges are not forced into financial hardship while seeking justice.

By helping consumers meet their daily needs, pay essential bills, and maintain stability, legal funding serves as a critical support system. It allows individuals to focus on recovery, pursue their claims fairly, and uphold their dignity during challenging times.

The stories of Brandon, Shirley, Tasha, Kinshota, and Gloria are not unique. They reflect a broader reality experienced by countless individuals across the country. For these consumers, legal funding is not a luxury or a convenience. It is a necessity that enables them to navigate life’s challenges with resilience and hope.

In the end, consumer legal funding is about more than financial assistance. It is about providing the means for individuals to sustain themselves, their families, and their futures while they seek the justice they deserve.

Why Consumer Legal Funding Matters, Even More in Light of the New York Fed’s Findings on Interest Rate Caps

February 9, 2026/in Blog /by Eric Schuller

In December 2025, the Federal Reserve Bank of New York released Staff Report No. 1173, Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits. The report explores how state-level interest rate caps—specifically 36 percent caps on consumer loans—impact credit markets and, consequently, the households most in need of credit access. The findings challenge a central premise of many regulatory proposals: that rate caps protect financially vulnerable consumers by limiting costly loans. Instead, the report finds that while interest rate caps may reduce high-cost borrowing, they also restrict credit access for the most credit-risky borrowers without improving their credit outcomes. This dynamic sheds new light on the importance of alternate financial tools, especially consumer legal funding, in the economic lives of individuals who are shut out of traditional lending channels.

At the heart of the report’s findings lies a simple economic truth: interest rates reflect risk. Financial institutions charge higher interest to those who need financial assistance with lower credit scores or unstable financial histories to cover the elevated risk of default. When states impose strict interest rate ceilings, financial institutions can no longer price risk appropriately, which undercuts the profitability of providing funds to those who are a higher-risk. According to the New York Fed study, this leads financial institutions to ration credit—essentially withdrawing it from those who need it most—rather than absorbing losses or operating at lower rates. In the states studied—South Dakota, North Dakota, and Illinois—credit to the riskiest borrowers contracted significantly after rate caps took effect. Critically, these consumers did not substitute this lost credit with offerings from banks or credit unions, despite expectations from proponents of the caps. Moreover, the caps did not improve delinquency outcomes for these borrowers, which suggests that lowered interest rates alone did not enhance financial health.

These results have profound implications for how we think about consumer financial protection. Well-meaning policymakers often view rate caps as a shield against exploitive lending practices. Yet when these regulations shut off access to formal credit entirely, they may inadvertently leave vulnerable individuals with fewer options—not better ones. Without access to payday loans, auto-title loans, or other forms of short-term credit, consumers in urgent need of funds may turn to unregulated, more expensive alternatives, or fall into cycles of debt and financial exclusion.

This is where consumer legal funding plays an increasingly vital role. Consumer legal funding provides non-recourse monies to plaintiffs awaiting settlements or judgments. Unlike loans, these funds do not require repayment if the claimant loses the case. For individuals without access to traditional credit, legal funding can be a financial lifeline—providing essential funds for living expenses, medical bills, or basic needs while justice unfolds over months or years.

As the New York Fed report underscores, interest rate ceilings can shrink the availability of credit to high-risk consumers who often lack the collateral, credit history, or financial stability that mainstream financial institutions require. Consumer Legal Funding steps into this gap not as a replacement for traditional credit, but as a bridge that enables individuals to pursue legal rights and obligations without financial ruin. When formal credit markets tighten—whether through regulation or economic downturn—these monies often become a crucial part of a consumer’s financial toolkit.

Beyond purely financial support, consumer legal funding carries important justice equity implications. For many plaintiffs—particularly those in personal injury, employment disputes, or civil rights cases—access to justice hinges on the ability to sustain day-to-day life while their case resolves. Without funding, many individuals are forced to abandon claims, accept lowball settlements, or forego legal action altogether. In this light, consumer legal funding does more than support credit access; it enables legal empowerment. It ensures that economic hardship does not become a barrier to pursuing legitimate claims against more powerful defendants.

Critics of consumer legal funding sometimes raise concerns about cost, transparency, or potential misuse. These are valid considerations for regulators and industry participants alike. But the New York Fed’s findings about credit rationing emphasize a broader truth: when mainstream credit options disappear, real financial demand doesn’t vanish—it just goes underground. Consumers will seek whatever tools are available to manage risk, cover expenses, and pursue opportunities. In many cases, consumer legal funding fills a critical void left by restrictive credit policies.

Understanding this context matters for policymakers. Rather than viewing consumer legal funding through a lens of suspicion or as a fringe financial product, regulators should recognize its role in financial inclusion. When interest rate caps inadvertently restrict access to credit for those most in need, it underscores the need for market-based solutions that responsibly support consumers without cutting them off from essential financial lifelines.

Moreover, the New York Fed’s research highlights a key lesson in public policy: good intentions are not enough. Protective regulations must be evaluated not just for their aspirational goals, but for their real-world impacts on access, inclusion, and economic stability. If interest rate caps have the unintended consequence of reducing credit access for vulnerable borrowers without improving financial outcomes, then alternative mechanisms that empower consumers—such as consumer legal funding—deserve serious consideration in the broader dialogue about consumer financial protection.

In conclusion, the Federal Reserve Bank of New York’s findings on usury limits provide a stark reminder that access to credit matters deeply for financially vulnerable populations. Through rationing, interest rate caps can restrict credit without delivering meaningful benefits. In such an environment, consumer legal funding becomes more than a financial product—it becomes a necessary tool for economic resilience and equitable access to justice. As policymakers, advocates, and financial innovators grapple with evolving markets, the role of consumer legal funding must be part of the conversation about how to support consumers who sit outside the reach of traditional credit systems.

“It’s not about how hard you hit. It’s about how hard you can get hit and keep moving forward.”— Rocky Balboa

February 2, 2026/in Blog /by Eric Schuller

Staying on Your Feet: How Consumer Legal Funding Helps Injured Consumers Stay in the Legal Fight

That line resonates far beyond the boxing ring. It speaks to endurance, resilience, and the quiet determination required to withstand forces much larger than oneself. For many injured consumers navigating the civil justice system, this quote captures the reality of their legal journey. They are not trying to overpower anyone. They are simply trying to stay standing long enough for justice to run its course.

This is where Consumer Legal Funding plays a critical role.

The Reality of the Legal Fight for Injured Consumers

When an individual is injured due to someone else’s negligence, the legal process that follows is rarely quick or easy. Cases can take months or even years to resolve. During that time, consumers often face lost wages, mounting medical bills, and everyday household expenses that do not pause just because a lawsuit is pending.

Insurance companies and large corporate defendants understand this pressure well. Delay is often a strategy. The longer a case drags on, the more financial strain the injured person experiences, and the greater the incentive to accept a settlement that may be far less than the case is worth. The imbalance of power is stark. On one side are well-capitalized institutions with legal teams and financial reserves. On the other is an injured consumer, often unable to work, trying to keep food on the table and a roof over their head.

In this context, “keeping moving forward” is not a metaphor. It is a daily struggle.

What Consumer Legal Funding Actually Does

Consumer Legal Funding exists to address this imbalance. It provides injured consumers with funds to cover basic living expenses while their legal claims proceed. These funds are not used to pay attorneys, finance litigation strategy, or prolong lawsuits. They are used for rent, utilities, groceries, car payments, and medical co-pays, the ordinary necessities of life that become extraordinary burdens after an injury.

Importantly, Consumer Legal Funding is non-recourse. Repayment occurs only if the consumer recovers in their case. If there is no recovery, the consumer owes nothing. This structure aligns the funding provider’s interests with the consumer’s outcome while ensuring that the consumer is not exposed to additional financial risk if the case fails.

In other words, Consumer Legal Funding does not help consumers “hit harder.” It helps them withstand the hits long enough to see their case through.

Preserving Choice and Preventing Coercion

Without access to Consumer Legal Funding, many injured consumers face impossible choices. They may be forced to return to work before they are medically able, jeopardizing their health. They may fall behind on rent or utilities, risking eviction or loss of essential services. Or they may feel compelled to accept a low settlement simply to stop the financial bleeding.

None of these outcomes promote justice. They reward delay and leverage rather than merit.

By providing financial stability, Consumer Legal Funding helps preserve consumer choice. It allows individuals to make legal decisions based on the facts of their case, not on immediate financial desperation. This is not about encouraging litigation. It is about preventing financial coercion from dictating legal outcomes.

Strengthening, Not Undermining, the Legal System

Critics sometimes suggest that Consumer Legal Funding distorts the legal system. In reality, it does the opposite. A legal system functions best when parties can participate on relatively equal footing. When one side can wait indefinitely and the other cannot pay next month’s rent, the system tilts away from fairness.

Consumer Legal Funding helps correct that tilt. It does not interfere with attorney independence, litigation strategy, or judicial decision-making. It simply ensures that injured consumers are not forced out of the process due to financial exhaustion.

This distinction matters. Consumer Legal Funding is about supporting people, not lawsuits. It funds lives, not litigation.

The Underdog Factor

The image of the underdog enduring against overwhelming odds is powerful because it is familiar. Most people understand what it means to be outmatched but unwilling to give up. Injured consumers are often cast in that role, not by choice, but by circumstance.

Like Rocky Balboa, they are not asking for shortcuts or guarantees. They are asking for the ability to stay in the fight. Consumer Legal Funding provides that ability. It gives consumers breathing room, dignity, and the chance to see justice through on its own timeline rather than one dictated by financial pressure.

Conclusion

At its core, Consumer Legal Funding recognizes a simple truth: resilience requires resources. Telling injured consumers to “tough it out” ignores the real financial harm that accompanies physical injury and prolonged litigation. Access to Consumer Legal Funding allows consumers to absorb the blows inherent in the legal process and keep moving forward.

In a system where delay often favors the powerful, helping the little guy stay on their feet is not a flaw. It is a feature of a fair and functioning civil justice system.

The Alliance for Responsible Consumer Legal Funding (ARC) applauds New York Governor Kathy Hochul for signing into law Assembly Bill 804C/Senate Bill 1104, a landmark measure establishing thoughtful regulation for Consumer Legal Funding in the Empire State.

December 22, 2025/in Blog /by Eric Schuller

Governor Hochul Signs Bill Championed by

Assemblymember William B. Magnarelli & Senator Jeremy Cooney

The Alliance for Responsible Consumer Legal Funding (ARC) applauds New York Governor Kathy Hochul for signing into law Assembly Bill 804C/Senate Bill 1104, a landmark measure establishing thoughtful regulation for Consumer Legal Funding in the Empire State.

Sponsored by Assemblymember William B. Magnarelli and Senator Jeremy Cooney, this legislation creates a clear framework that protects consumers while preserving access to a vital financial resource that helps individuals cover essential living expenses—such as rent, mortgage, and utilities, while their legal claims are pending.

“I am pleased that the Governor signed this important bill into law today. It is the culmination of 8-years of hard work on this issue. This law will provide a sound framework to regulate financing agreements and provide protections to consumers. I want to thank the Alliance for Responsible Consumer Legal Funding and its President, Eric K. Schuller for working with me to get this bill over the finish line. I would also like to thank and acknowledge my late colleague, Assemblyman Michael Simanowitz, who was the original sponsor of this legislation.” — William B. Magnarelli, 129th Assembly District

For many New Yorkers, Consumer Legal Funding provides a critical financial lifeline while a legal claim is pending, often for months or years. Injured consumers frequently face lost income and mounting household expenses at the very moment they are least able to manage financial strain. Consumer Legal Funding allows individuals to cover essential living costs, such as rent, utilities, transportation, and groceries, without being forced into an early or unfair settlement simply to make ends meet.

Senator Jeremy Cooney stated: “Today marks a historic step forward in protecting everyday New Yorkers from opaque and often predatory litigation financing practices. For too long, vulnerable plaintiffs have been left in the dark about the true cost of third-party funding, only to see the majority of their hard-earned legal recovery eroded by fees and unclear terms. I’m proud to sponsor this bill that brings transparency, accountability, and basic consumer protections to this industry, ensuring New Yorkers can pursue justice without sacrificing financial security.”

Because Consumer Legal Funding is non-recourse, consumers repay funds only if they recover proceeds from their legal claim, if there is no recovery, they owe nothing. This structure protects consumers from taking on debt, preserves their financial stability, and ensures they retain full control over their legal decisions. By enacting this legislation, New York affirms that Consumer Legal Funding supports financial stability and access to justice.

“This law strikes the right balance between consumer protection and financial empowerment, by establishing clear rules of the road, New York ensures that consumers retain freedom of choice, transparency, and access to funds that help them meet their immediate needs during one of the most difficult times in their lives.” said Eric K. Schuller, President of the Alliance for Responsible Consumer Legal Funding (ARC). “We thank Governor Hochul for her leadership and Assemblymember Magnarelli and Senator Cooney for their commitment to fairness and consumer choice. This new law affirms that Consumer Legal Funding is about funding lives, not litigation.”

Under the new law, Consumer Legal Funding is defined as a non-recourse transaction in which a company purchases a contingent right to receive proceeds from a consumer’s legal claim. The law contains several key consumer safeguards, including:

Clear Contract Disclosures: All terms, charges, and cumulative repayment amounts must be plainly stated and
initialed by the consumer.
Right to Cancel: Consumers have ten business days to cancel a contract without penalty.
Attorney Oversight: Attorneys must acknowledge reviewing mandatory disclosures and are prohibited from accepting referral fees or having a financial interest in funding companies.
Prohibited Practices: Funding companies may not influence settlement decisions, mislead consumers through
advertising, or refer clients to specific attorneys or medical providers.
Registration and Reporting: All funding companies must register with the State of New York and file annual
reports, and meet bonding and disclosure requirements.

The act takes effect 180 days after becoming law and marks another milestone in advancing consumer
protection and responsible business practices across the nation.

About ARC
The Alliance for Responsible Consumer Legal Funding (ARC) is the national trade association representing
companies that provide Consumer Legal Funding—non-recourse financial assistance that helps consumers
meet everyday living expenses while their legal claims proceed. ARC advocates for policies that protect
consumers and ensure access to fair, transparent, and responsible funding options.

New York Should Regulate Consumer Legal Funding, Not Mischaracterize It

December 12, 2025/in Blog /by Eric Schuller

Recent commentary calling on New York to “stop lawsuit funding companies” reflects a familiar pattern: real concerns about consumer protection are raised, but they are aimed at an oversimplified and often inaccurate picture of how consumer legal funding actually operates. The result is a policy debate driven more by fear than by facts.

Fortunately, New York lawmakers have already done the hard work of addressing those concerns responsibly. Assembly Bill A.804-C, the “Consumer Litigation Funding Act,” responds directly to the issues raised in the recent Press & Sun-Bulletin opinion piece, not by banning consumer legal funding, but by regulating it rigorously, transparently, and in a way that prioritizes consumers.

This is precisely what sound public policy looks like.

The Article’s Core Concerns, and Why They Matter

The opinion article raises several recurring critiques of consumer legal funding: that consumers do not understand the terms, that costs can spiral beyond expectations, that funders improperly influence litigation decisions, and that the industry operates in the shadows without meaningful oversight.

These concerns are not new. They have appeared in editorial pages for more than a decade, often without acknowledgment that many states have already enacted comprehensive consumer protection frameworks to address them. New York’s A.804-C is one of the most detailed and consumer-focused statutes proposed anywhere in the country.

Rather than eliminating access to a financial option used by injured New Yorkers to pay rent, buy groceries, or keep utilities on, the bill directly confronts the alleged abuses through enforceable statutory limits.

Transparency Is Not Optional Under A.804-C

One of the article’s central claims is that consumers enter funding agreements without fully understanding the financial consequences. A.804-C squarely addresses this concern.

The bill mandates plain-language contracts written so that an average consumer can understand them without professional assistance. Every contract must be fully completed before signature, include consumer initials on every page, and prominently disclose the funded amount, itemized charges, and the maximum amount the consumer may ever be required to repay.

Critically, the bill requires a detailed payment schedule showing the exact amount owed at six-month intervals from funding through resolution. This is not vague disclosure. It is precision disclosure, designed to eliminate surprises and allow consumers, attorneys, and insurers to understand obligations from day one

A Statutory Right to Walk Away

The article suggests consumers are locked into unfair arrangements. A.804-C directly rebuts this narrative by providing a ten-business-day right of rescission.

During this period, a consumer may cancel the contract without penalty by returning the funded amount. No interest, no fees, no retaliation. This cooling-off period mirrors protections found in other consumer finance statutes and ensures funding decisions are deliberate, not impulsive.

If consumer legal funding were truly predatory, such a rescission right would be commercially impossible. The bill proves otherwise.

Zero Control Over Litigation Decisions

Perhaps the most damaging misconception repeated in the article is that consumer funding companies interfere with lawsuits or pressure consumers to prolong litigation. A.804-C expressly prohibits this.

Funding companies are barred from receiving any right to make or influence decisions about litigation strategy, settlement timing, or resolution amounts. Those decisions remain solely with the consumer and their attorney. Any attempt to interfere violates the statute and triggers penalties.

The bill also bans referral fees, kickbacks, or financial relationships between funders and attorneys, medical providers, or chiropractors. These provisions ensure that funding decisions remain separate from legal representation and medical care.

If the concern is independence of the justice system, A.804-C protects it explicitly.

Attorney Oversight Without Conflicts

Unlike the caricature presented in many opinion pieces, A.804-C integrates attorneys into the consumer protection framework without compromising their independence.

Attorneys must acknowledge in writing that they have reviewed mandatory disclosures with the consumer, are working on contingency, and have not received or been promised any financial consideration from the funding company. They also confirm that they have provided no tax or benefits advice related to the transaction.

At the same time, the bill preserves attorney-client privilege for communications related to funding, preventing disclosure from becoming a backdoor discovery tool.

This is a balanced approach that respects ethical boundaries while reinforcing transparency.

Registration, Reporting, and Public Oversight

The article implies that consumer legal funding operates in the shadows. A.804-C dispels that claim entirely.

Funding companies must register with the State of New York, undergo character and fitness review, post a bond or letter of credit, file their contract forms for approval, and submit annual reports detailing the number of fundings, total amounts, and charges.

Failure to comply means the company cannot legally operate in New York.

That is not an unregulated market. That is a supervised, accountable one.

Regulation That Preserves Consumer Choice

What the opinion piece ultimately overlooks is the consequence of prohibition. Eliminating consumer legal funding does not eliminate financial need. It simply removes one option from injured New Yorkers who may already be facing lost wages, medical bills, and months or years of litigation delay.

A.804-C recognizes that reality. It does not endorse abuse. It prevents it. It does not promote secrecy. It mandates disclosure. It does not empower funders over consumers. It limits funders’ rights and strengthens consumer remedies.

New York does not need to “stop” consumer legal funding. It needs to regulate it intelligently. Assembly Bill A.804-C does exactly that.

In a policy environment too often dominated by slogans, A.804-C stands out as serious legislation responding to real concerns with real solutions. That is the difference between opinion and governance.

Consumer Legal Funding Helps Families It Doesn’t Drive “Nuclear Verdicts”

December 6, 2025/in Blog /by Eric Schuller

Holding Families Together Has Nothing to Do With “Nuclear Verdicts”

The American Transportation Research Institute’s new report, Trucking Litigation: A Forensic Analysis, raises an important question: Why are lawsuit outcomes in truck-related crashes getting bigger and more volatile? The paper points to multiple forces, venue selection, injury severity, negligence patterns, litigation strategies, and rising medical costs, all contributing to rising award sizes and plaintiff victories.

But one thing is not driving these outcomes: Consumer Legal Funding.

Consumer Legal Funding (CLF) is routinely mistaken for the type of financial investment that is designed to shift litigation strategy or chase oversized verdicts. In reality, CLF is used for one simple reason, to help injured consumers keep the lights on and pay rent while their case makes its slow way through the civil justice system.

The ATRI report confirms that the dynamics escalating trucking litigation have nothing to do with how a consumer pays for groceries while they’re out of work after a crash. Instead, the data clearly shows that the true drivers lie elsewhere.

What the ATRI Report Actually Shows

The report identifies several structural and legal factors behind rising litigation cost exposure for the trucking industry:

• State vs. Federal Venue

State courts drive larger verdicts, median awards exceed comparable federal awards by over $1 million. Plaintiffs use procedural tactics to keep cases in plaintiff-friendly state venues, costing carriers an estimated $102 million in one year alone.

• Injury Severity and Negligence

Awards scale sharply based on severe injuries such as traumatic brain injuries or spinal damage. Certain negligence types, hours-of-service violations, cell phone use, substance abuse, strongly correlate with awards above $10 million.

• Litigation Tactics

Anchoring strategies, “reptile theory,” and procedural barriers to federal removal influence jury perception.

• Social inflation and jury sentiment

The report cites growing distrust of corporations and litigation norms that make settlement harder and trials riskier.

Nothing in the dataset signals any causal influence from a consumer receiving $3,000–$5,000 to pay a mortgage bill while waiting for their attorney to negotiate with an insurer.

Consumer Legal Funding Has No Role in Case Strategy or Verdict Inflation

Consumer Legal Funding:

✔ does not pay legal fees

✔ does not pay case costs

✔ does not influence litigation decisions

✔ does not control settlement timing

✔ does not give funders any voice over whether a consumer accepts an offer

This is codified in multiple state statutes: funders cannot participate in litigation strategy, cannot communicate with counsel about the legal case, and cannot interfere with attorney-client representation.

These are the exact safeguards that separate CLF from Third-Party Litigation Financing (TPLF).

TPLF, referenced in the ATRI report, involves multi-million-dollar capital investment in lawsuits, commonly in commercial litigation.

CLF funds survival, not strategy.

The consumer uses the money to:

• keeps a roof over the consumer’s head

• pays utilities

• buys food

• support their kids

• avoid eviction while they’re out of work

The outcome of the case?

CLF has no influence over it, by design.

ATRI’s Own Evidence Proves the Drivers Are Legal and Procedural, Not Financial Support

Let’s review the report’s key findings:

1️⃣ Venue is destiny

The largest cost differential comes from state-court litigation. The median verdict in state courts is $1,082,500 larger than federal courts.

That has nothing to do with whether the plaintiff received a few thousand dollars for living expenses.

2️⃣ Severe injuries drive severe awards

Cases involving traumatic brain injuries, spinal injuries, or multiple injured plaintiffs consistently lead to high payouts.

Medical facts, not personal finances, shape outcomes.

3️⃣ Certain negligence types trigger nuclear verdicts

The top award-generating behaviors: HOS violations, cell phone use, substance abuse, improper onboarding, employer negligence.

These are safety-and-conduct failures, not wage-gap problems.

4️⃣ Awards are rising even where settlements are common

Most cases settle — 96.2% in state courts.

A consumer food bill has zero bearing on settlement calculus between attorneys and carriers.

The ATRI numbers stack up to one conclusion: the litigation environment and the underlying crash conditions, not personal financial stress, drive outcomes.

Why CLF Actually Maintains Fairness

Without CLF, a plaintiff with urgent financial needs faces a coercive choice:

Settle cheap…or risk foreclosure, eviction, utility shutoffs, or debt spirals while waiting for fair compensation.

That dynamic benefits insurers and defendants, not consumers.

By giving families breathing room, CLF allows cases to reach an outcome that reflects the true merits, not the size of the plaintiff’s bank account.

Consumer Legal Funding:

• reduces pressure to accept lowball offers

• does not increase the economic damages owed

• does not create new liabilities or shift fault

• does not inflate pain-and-suffering awards

• simply guarantees the courthouse doors stay open for injured consumers

If anything, CLF ensures that an outcome, settlement or verdict, reflects the injury and negligence evidence that the ATRI report spends hundreds of pages analyzing.

The ATRI Report Shouldn’t Be Used to Conflate CLF and TPLF

Because the report mentions Third-Party Litigation Funding within a section on legal concerns, it is easy for policymakers to mistakenly assume CLF is part of the trucking litigation problem.

It is not.

CLF does not:

• enter commercial cases

• finance case expenses

• fund attorneys

• influence crash-related negligence

• affect federal venue eligibility

• alter juror psychology

• create “phantom damages”

• expand award categories

It is simply a consumer financial tool, used for household survival.

All of the trends the ATRI report identifies would continue exactly the same if Consumer Legal Funding disappeared tomorrow.

Blaming CLF Won’t Fix the Problems ATRI Identifies

A System Should Not Punish the Injured for Being Broke

Trucking plays a vital role in the American economy. So does justice.

A person who is hit by a vehicle weighing 80,000 pounds should not be forced into bankruptcy or homelessness while waiting for the legal system, which often takes four years to resolve a case, to function.

Consumer Legal Funding helps families survive through that process.

It does not change the judge.
It does not change the jury.
It does not change the evidence.
It does not change the verdict.

It only changes whether a family has heat in January.

Conclusion

The ATRI report provides valuable insight into trucking litigation trends. Policymakers should take it seriously. But using its findings to target Consumer Legal Funding would be a profound misapplication of the data.

The report shows that:

• Awards are tied to negligence and injury severity — not plaintiff personal finance

• Venue manipulation inflates cost — not rent payments

• Social inflation, not survival assistance, drives volatility

CLF participants don’t ask for nuclear verdicts — they ask for groceries.

And no one should be forced to trade their home for their day in court.

Consumer Legal Funding Has Nothing to Do With “Secret Litigation Funding.” It’s Time We Stop Treating Them as the Same.

December 1, 2025/in Blog /by Eric Schuller

A recent Techdirt article — “Secret Third-Party Litigation Funding Threatens American Innovation” (Nov. 26, 2025) — raises alarms about hedge-fund-backed corporate lawsuits, foreign sovereign wealth funds influencing IP disputes, and a litigation-investment ecosystem that could shape policy and national competitiveness in the shadows.

But there is a critical problem in how this debate is unfolding: the article, like many before it, talks about third-party litigation funding as if it is a single unified product. It is not. There are two distinctly different practices, commercial litigation financing and Consumer Legal Funding, and only one of them fits the narrative of shadow money, foreign investment, and corporate legal warfare.

Consumer Legal Funding has nothing to do with what Techdirt is describing. And the more these two products are conflated, the more lawmakers risk harming ordinary Americans while attempting to rein in something entirely different.

The Product at the Center of Techdirt’s Warnings Is Commercial Litigation Funding, Not Consumer Legal Funding Commercial or third-party litigation financing is exactly what it sounds like: a financial vehicle used to fund lawsuits. Investors, litigation funds, or private capital firms provide money to cover legal fees, expert witnesses, discovery costs, and the enormous expense of taking a high-stakes case to trial. The financial stakes are massive. Funding arrangements may run into the tens or even hundreds of millions of dollars. Payouts are structured like investment returns.

That is the model Techdirt is responding to.

Consumer Legal Funding is none of those things.

Consumer Legal Funding: Funding Lives, Not Litigation

Consumer Legal Funding exists for one reason: to help everyday people survive financially while their legal claim is pending.

When someone is injured in a car crash, or negligence case, the legal process does not stop their rent, grocery bills, light bill, or childcare needs. Cases can take months, often years, to resolve. Insurance companies know this, and delay can become a tactic. A financially desperate claimant is a claimant more likely to settle cheap.

Consumer Legal Funding steps in where the system leaves people stranded.

— Monies are provided directly to the consumer — not the law firm.
— They are used to maintain basic life needs, not to hire experts or bankroll litigation strategy.
— If the case is unsuccessful, the consumer owes nothing. There is no debt, no repayment obligation, no collection agency waiting if a suit fails.
— Funding averages $3,000–$5,000, not $3 million–$5 million.

One product is about investing in cases.
The other is about supporting human beings in crisis.

Why Conflation Is Dangerous
When articles like Techdirt describe “secret outside litigation funding” and then policymakers respond with legislation covering all third-party funding, they put injured consumers directly in the crossfire.

Restrictions that eliminate a lifeline for injured families
A blanket ban or rigid disclosure requirement could leave consumers with one option — settle early for pennies because they can no longer afford to wait.

If Congress or state regulators want more visibility into foreign-backed commercial financing, that debate is valid. If they want to prevent geopolitical manipulation through coordinated litigation, that deserves public dialogue.

But those policies should be written with a scalpel, not a sledgehammer.

Consumer Legal Funding should never be regulated as if it is part of the “secret litigation funding” problem. It is simply not that product. It is a consumer-focused financial support tool, built to fund lives, not lawsuits.

The Bottom Line
Techdirt’s warnings about commercial third-party litigation finance raise real questions worth debating. But using that discussion to criticize or restrict Consumer Legal Funding is not just inaccurate, it is harmful. It risks dismantling one of the few mechanisms that helps ordinary Americans stay afloat while fighting for justice.

Innovation may be threatened by secret litigation investment.
But families are threatened by the inability to pay rent while waiting for a fair settlement.

The article targets one system. Let’s not punish another.

Consumer Legal Funding: Funding Lives, Not Litigation.

Why Consumer Legal Funding Should Be Exempt from the “Tackling Predatory Litigation Funding Act”

October 30, 2025/in Blog /by Eric Schuller

The recently introduced Tackling Predatory Litigation Funding Act seeks to amend the Internal Revenue Code to impose a new federal tax on income derived from “litigation financing agreements.” While the intent, to regulate and tax large-scale speculative investment in litigation, may be understandable, the bill’s definitions are overly broad and risk sweeping in an entirely different financial product: Consumer Legal Funding.
Consumer Legal Funding is not litigation financing. It is a consumer-level, non-recourse financial transaction designed to help individuals cover basic household needs while they await the resolution of a pending legal claim. Taxing it under this legislation would not only misclassify the product but also harm the very consumers the measure claims to protect.

1. Understanding the Purpose of the Tillis Bill

At its core, Senator Tillis’s bill would impose a tax equal to the highest individual income tax rate plus 3.8% on “qualified litigation proceeds” received by a “covered party.” The definition of a covered party includes any third-party entity, domestic or foreign, that provides financing for a civil action and receives a return linked to the proceeds of that action

The Tillas Tax Bill defines a “litigation financing agreement” as an arrangement in which a third party provides funds to a named party or law firm in exchange for a direct or collateralized interest in the proceeds of a civil action. In essence, it targets capital providers who invest in litigation as a financial asset, entities that may fund law firms, commercial plaintiffs, or portfolios of cases.

That description, however, does not accurately fit Consumer Legal Funding.

2. Consumer Legal Funding Is a Personal-Finance Product, Not a Litigation Investment

Consumer Legal Funding exists to meet individual financial needs, not to invest in lawsuits. When a consumer has been injured and is pursuing a legal claim, often against a large, well-funded insurer, they may be unable to work and face mounting expenses such as rent, groceries, medical costs, and utilities. Consumer Legal Funding provides non-recourse funds to help them maintain stability. If the consumer does not recover in their case, they owe nothing.

Unlike litigation finance firms, Consumer Legal Funding companies do not:

Fund attorney fees, discovery costs, or expert witnesses;
Influence litigation strategy or settlement decisions;
Purchase stakes in law firms or aggregate portfolios of claims;
Seek to profit from legal outcomes as an investment class.

The consumer, not the company, controls the litigation, the attorney, and all settlement decisions. The transaction’s purpose is humanitarian and financial, not speculative. In short, Consumer Legal Funding funds lives, not litigation.

3. The Statutory Definitions Do Not Fit Consumer Legal Funding

The bill defines a “litigation financing agreement” as one that creates “a direct or collateralized interest in the proceeds of [a] civil action,” executed with “any attorney, co-counsel, or named party” to the case

While that might appear to include any transaction tied to case proceeds, Congress has repeatedly recognized the importance of context and intent in tax classification.

Consumer Legal Funding does not create a collateralized interest in the litigation itself. It is a purchase of a contingent right to a small portion of potential case proceeds. The funder has no lien on the case, no security interest in the litigation, and no claim against the defendant or the attorney. The consumer alone holds the legal claim.

4. Taxing Consumer Legal Funding Would Harm Consumers, Not Speculators

Applying this tax to Consumer Legal Funding would not affect hedge funds or foreign investment pools; it would directly impact injured consumers. A tax on Consumer Legal Funding companies would force higher transaction costs, reduce available funding, and make it harder for consumers to access help during times of financial crisis.

For example:

A person injured in an accident may need $3,000 to avoid eviction while awaiting a settlement offer that could take months.
If the funding company must pay an additional federal tax on its limited return, it will either raise costs or withdraw from certain markets entirely.
The net result: consumers are left with no safe, regulated option and may turn instead to payday lenders or credit-card debt.

The bill’s sponsors claim to target “predatory litigation funding,” but in reality, taxing Consumer Legal Funding would punish consumers for being poor and discourage access to justice.

5. The Bill’s Structure Shows It Was Aimed at Institutional Investment, Not Consumer Funding

Several features of the bill make clear that it was drafted with large-scale litigation finance in mind:

Entity-level taxation: Section 5000E-1(c) applies the tax at the entity level for pass-through entities such as partnerships or S-corporations, structures typical of commercial investment funds, not consumer-funding companies.
Anti-netting provisions: The bill forbids offsetting gains with losses, suggesting a concern about investors managing diversified litigation portfolios for profit. Consumer Legal Funding companies operate on a per-case basis, not as hedge-fund-style portfolios.
Reference to sovereign wealth funds and swaps: The inclusion of foreign sovereign wealth funds and “options, futures, swaps, or similar contracts” clearly points to the commercial investment market, not the small consumer transaction space.

Consumer Legal Funding is the functional opposite of these arrangements. It operates in a retail consumer-finance environment, subject to state-level consumer protection laws, caps, and disclosures, not the high-finance environment this bill seeks to regulate.

6. State Legislative Exemptions Demonstrate Clear Distinction

Across the country, several states have enacted legislation or adopted rules that explicitly distinguish Consumer Legal Funding from broader litigation financing or third-party litigation investment products. These statutes and regulations make clear that the two concepts are not interchangeable.

Arizona: The Arizona Supreme Court amended Rule 8 of the Rules of Civil Procedure to carve out Consumer Legal Funding from its definition of litigation financing. This rule recognizes that these transactions are not investments in litigation, but consumer financial products designed to support individuals during pending claims.

Texas’s Supreme Court subcommittee considered including funding in its litigation-financing rule but declined, recognizing that Consumer Legal Funding serves a different purpose.

Kansas: Kansas enacted legislation defining “consumer litigation funding” as a separate, regulated financial product under the state’s consumer protection framework. The statute explicitly provides that such transactions do not constitute loans and are distinct from attorney funding or litigation investment agreements.

Colorado: Colorado’s consumer funding law regulates Consumer Legal Funding through licensing, disclosure, and fee transparency requirements, while clearly exempting it from classification as lending or as traditional litigation finance. This framework demonstrates that the state views these transactions as consumer financial assistance, not litigation investment.

Louisiana: Louisiana’s Revised Statutes (§9:4861 et seq.) likewise treat Consumer Legal Funding as a lawful, non-recourse consumer transaction, distinct from loans and from litigation financing arrangements. Louisiana’s approach reinforces the understanding that these transactions are between funders and consumers, not between investors and law firms.

Collectively, these states’ actions show a consistent national pattern: policymakers at the state level recognize that Consumer Legal Funding occupies its own category, distinct from commercial litigation finance. Any federal measure that fails to preserve this distinction risks disrupting an established and well-regulated consumer marketplace.

7. The Economic and Social Role of Consumer Legal Funding

Consumer Legal Funding is a market-based alternative to government aid or high-interest debt. It provides liquidity to consumers who otherwise face “forced settlements”, situations where plaintiffs accept lowball offers simply because they cannot afford to wait.

By stabilizing households during litigation, Consumer Legal Funding:

Promotes fair settlements that reflect the true value of claims;
Reduces reliance on social safety-net programs;
Supports small businesses and local economies by keeping consumers solvent.

Taxing the industry as if it were speculative litigation finance would undermine these benefits and exacerbate inequality between large corporate defendants and individual plaintiffs.

8. Consumer Legal Funding Does Not Generate “Qualified Litigation Proceeds”

Under the bill, “qualified litigation proceeds” are defined as realized gains, net income, or profits derived from litigation financing agreements

Consumer Legal Funding companies receive contractual payments directly from consumers’ portion of a settlement, after attorneys’ fees and costs. The consumer, not the funder, is the legal owner of the claim.

In other words, the company’s return arises from the consumer’s contractual obligation. This is a critical legal distinction. The IRS has historically treated such non-recourse contingent-asset purchases as consumer-finance transactions, not income derived from litigation.

If the Treasury were to apply this tax to Consumer Legal Funding, it would represent a fundamental mischaracterization of the nature of the transaction and could open the door to taxing numerous unrelated consumer products tied to contingent events (for example, insurance recoveries, structured settlements, or medical lien receivables).

9. Exemption Language Would Align Federal Law with Legislative Intent

To preserve the bill’s intent, targeting large-scale speculative litigation investment, while avoiding harm to consumers, Congress should adopt a clear statutory exemption for Consumer Legal Funding. The exemption could mirror existing state definitions, for example:

“The term ‘litigation financing agreement’ shall not include any non-recourse transaction in which a consumer legal funding company purchases from a consumer a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award, or verdict obtained in the consumer’s legal claim.”

Such language would ensure that consumer-level transactions remain outside the bill’s scope, while still capturing true commercial litigation financing arrangements.

10. Conclusion: Funding Lives, Not Litigation

The Tackling Predatory Litigation Funding Act reflects concerns about transparency and profit-seeking in large-scale litigation investment. However, Consumer Legal Funding is not part of that world. It is a consumer-protection tool that gives ordinary Americans breathing room while they seek justice against powerful insurers and corporations.

To treat it as taxable “litigation income” would not punish predatory financiers, it would punish injured consumers, accident victims, and struggling families who simply need help paying rent or buying groceries while their case proceeds.

Consumer Legal Funding is a lifeline, not a loophole. Congress should make that distinction clear by exempting Consumer Legal Funding from the tax provisions of the Tackling Predatory Litigation Funding Act.

As the Alliance for Responsible Consumer Legal Funding reminds policymakers:
Consumer Legal Funding, Funding Lives, Not Litigation.