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

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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

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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.

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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

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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”

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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.

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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”

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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.

How Consumer Legal Funding is help for real people waiting for justice.

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When a person is injured, harassed, or wrongfully terminated, the path to justice can be long, uncertain, and financially draining. For many Americans, the decision to pursue a fair and just settlement often comes down to one question: Can I afford to wait? 

Consumer Legal Funding exists to make sure the answer is yes. By providing non-recourse funds to individuals with pending legal claims, Consumer Legal Funding gives people the ability to cover their essential living expenses, so they can stand firm for justice rather than accept a settlement that is unfair, inadequate, or coerced by financial desperation.

This isn’t about financing lawsuits, it’s about helping people live while their case unfolds.

A Lifeline for Working Families
One of the most common misconceptions about Consumer Legal Funding is that it fuels litigation. In truth, it fuels survival. Most recipients are ordinary people facing extraordinary hardship, not high-profile plaintiffs or corporations. They are single parents, hourly workers, veterans, and students, people who, through no fault of their own, find their lives upended by injury, discrimination, or misconduct.

Take the case of a single mother working at a pizza restaurant. After enduring repeated sexual harassment from her manager, including physical assault, she was transferred to another location. But when retaliation followed, she had no choice but to leave her job. With no steady income and legal proceedings underway, she turned to Consumer Legal Funding for help. The funds she received allowed her to pay her rent, care for her children, and maintain stability while her attorney fought for justice. Without that support, financial pressure might have forced her into an unacceptable settlement just to stay afloat.

These are not rare stories. They are everyday examples of how Consumer Legal Funding empowers individuals to seek fairness on their own terms.

Standing Up to Discrimination and Retaliation
The impact of Consumer Legal Funding extends well beyond physical injury cases. It plays a vital role in ensuring that victims of workplace discrimination, retaliation, and wrongful termination can sustain themselves while seeking redress. 

For instance, an employee at a property management company endured racial harassment and disparate treatment compared to white coworkers. Despite her hard work, she was denied access to essential management tools for months, blocking her from receiving proper credit for new tenants she signed up. Unable to rely on her employer’s fairness or immediate court relief, she needed help to meet her basic needs. Consumer Legal Funding provided the necessary financial breathing room so she could continue her case rather than succumb to pressure to drop it.

These are the moments where financial relief intersects directly with justice. Without access to funding, individuals in these situations are often left to choose between their principles and their survival. With Consumer Legal Funding, they don’t have to.

Supporting Recovery and Health
Some cases involve physical or psychological trauma that requires extended recovery periods, leaving individuals unable to work or afford treatment. Consumer Legal Funding provides an essential bridge in these circumstances, ensuring that claimants can focus on healing rather than financial panic.

A consumer suffered a severe head injury when an object fell on them, requiring neuro treatment and months of therapy. Another, a police officer who witnessed his partner being shot, required psychological support to cope with the trauma. In both instances, Consumer Legal Funding covered their immediate costs, including therapy, so they could recover without worrying about bills piling up.

Helping the Wrongfully Convicted Rebuild
Few injustices are as profound as wrongful conviction. Yet even after release, the journey toward rebuilding a life can be fraught with obstacles, both emotional and financial.

One such consumer’s story evokes the struggles seen in The Shawshank Redemption. After enduring repeated assaults and abuses while incarcerated, he emerged diagnosed with agoraphobia, unable to engage comfortably with the outside world. Consumer Legal Funding helped him take a step toward independence and dignity by providing the funds to start a small car refurbishment business. The funding covered equipment, rent, and essential startup costs, allowing him to work privately, employ one assistant, and reintegrate into society on his own terms.

This is what “Funding Lives, Not Litigation” truly means: providing the opportunity for renewal, not just restitution.

Restoring Dignity in Catastrophic Injury Cases
Sometimes, a single moment changes a life forever. In one case, a worker at a company that built wooden trusses was left paralyzed from the waist down after a workplace accident. The plaintiff faced a daunting road ahead, unable to work, yet responsible for supporting his wife and two children living overseas. He also needed a specially equipped vehicle and home health assistance just to manage daily life. 

Consumer Legal Funding provided the vital support necessary to maintain stability while his legal team pursued justice. The funds allowed him to stay connected to his family and preserve his dignity during an otherwise devastating time.

Protecting Families from Unsafe Living Conditions
Legal battles involving unsafe or negligent landlords can stretch on for months, leaving families stuck in dangerous or unhealthy environments. 

A mother of three studying to get her degree found herself in such a situation. After mold was discovered in her apartment, the landlord moved her to another unit, one that also contained hidden toxic mold. Her family’s health deteriorated, and she felt trapped. Consumer Legal Funding gave her the means to secure a mobile home where she and her children could live safely. With stability restored, she could continue pursuing her legal case and her education without sacrificing her children’s well-being.

Empowering Consumers Through Life’s Unexpected Crises
Life rarely pauses for litigation. Emergencies happen, and when they do, Consumer Legal Funding can provide the difference between stability and collapse.

For example, one consumer in an employment case lost her mother overseas. The funding she received allowed her to fly overseas to attend the funeral and lay her mother to rest, something she couldn’t have afforded otherwise.

Another consumer faced the imminent loss of her vehicle to repossession. Her car was her lifeline, without it, she would have lost her job. Consumer Legal Funding provided the money in time to prevent that from happening, preserving her ability to work and provide for her family.

Ensuring Fair and Just Settlements
At its core, Consumer Legal Funding empowers individuals to seek justice without being coerced by economic hardship. Without it, many plaintiffs are forced to accept early, unfair settlements simply because they can’t afford to wait. Insurance companies and defendants know this and often use delay tactics as a strategic advantage. 

Consumer Legal Funding turns the pursuit of justice into a fair fight. By helping consumers meet their immediate needs, rent, groceries, utilities, transportation, and medical care, it ensures they can allow their attorneys to negotiate from a position of strength, not desperation.

In this way, Consumer Legal Funding upholds one of the most fundamental principles of justice: that outcomes should be based on merit, not on who can afford to hold out longer.

Conclusion: Strengthening the Right to Seek Justice Without Sacrifice
Consumer Legal Funding is more than a financial product, it is a financial tool that restores fairness, stability, and dignity to people navigating life’s hardest moments. From victims of harassment and discrimination to those suffering from injury, wrongful conviction, or unsafe living conditions, Consumer Legal Funding provides a bridge between crisis and resolution.

It helps consumers stay housed, fed, and hopeful. It allows them to reject inadequate offers and pursue fair and just settlements. And above all, it reinforces a core American value, that justice should never depend on the size of one’s bank account.

Consumer Legal Funding: Funding Lives, Not Litigation.

The Insurance Industry’s Double Standard: Calling for Price Caps on Others, Not Themselves

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For years, the insurance industry has loudly opposed any attempt to regulate its own pricing practices, yet when it comes to Consumer Legal Funding (CLF), a private, non-recourse transaction that helps injured individuals stay afloat financially while awaiting the resolution of their legal claims, the same insurers suddenly become champions of “rate caps” and “price controls.” This contradiction is not only hypocritical, it’s revealing. Insurers decry CLF as costly to consumers while simultaneously hiking their own premiums at rates far exceeding inflation. The double standard exposes an industry trying to deflect attention from its own excesses by scapegoating a product that empowers consumers rather than exploiting them.

Soaring Premiums and Renewed Talk of Price Controls

As The Wall Street Journal recently reported, (https://www.wsj.com/finance/regulation/runaway-insurance-costs-bring-back-talk-of-price-caps-fe4df279?mod=author_content_page_1_pos_1)insurance premiums for home and auto coverage have skyrocketed, 50% and 42% respectively since 2020, far outpacing the 26% rise in consumer prices. Lawmakers from Illinois to Louisiana are now exploring legislation to cap rates or ban “excessive” premiums. In Louisiana, Governor Jeff Landry has accused insurers of “sending record profits to Wall Street while our rates continue to climb.” Even some Republican policymakers, typically allies of business deregulation, have conceded that the market has spun out of control. Yet, as pressure mounts for oversight, the insurance lobby warns that price caps would destroy competition and drive carriers out of states. Their argument is simple: government shouldn’t interfere with market pricing, but that principle seems to apply only when insurers are the ones setting the prices. When it comes to Consumer Legal Funding, the same voices demand caps, fee limits, and disclosures so invasive they would cripple the industry.

The Hypocrisy of Selective Regulation

The contradiction is glaring. Insurers insist that their pricing should remain a matter of actuarial science and free-market competition, then turn around and lobby for government-mandated caps on what private CLF companies can charge. Consumer Legal Funding isn’t insurance, lending, or a public utility. It’s a voluntary, non-recourse transaction between an individual plaintiff and a funding company. If the plaintiff loses their case, they owe nothing. If they win, the company is repaid from a portion of the settlement. The funds are used for household expenses, rent, groceries, childcare, or medical bills, not legal fees. Yet insurers push for rate ceilings on CLF under the guise of “consumer protection.” They claim these private agreements drive up settlement values, inflate damages, and contribute to what they call a “tort tax,” an alleged hidden cost of litigation that raises prices for everyone. That narrative is false on every level. Consumer Legal Funding doesn’t create lawsuits, doesn’t affect liability verdicts, and doesn’t add costs to insurance premiums. It simply prevents insurers from weaponizing financial pressure to force injured individuals into accepting lowball settlements.

The Real Driver of Costs: Insurer Delay and Denial

If there is a “tort tax” in the civil justice system, it’s one imposed by insurance company delay tactics. Insurers routinely stall, dispute, and underpay claims, knowing that time is their greatest leverage. As weeks turn into months, many plaintiffs, unable to work and facing mounting bills, are forced to settle for far less than their cases are worth. Consumer Legal Funding helps correct that imbalance by giving people financial breathing room. It ensures that cases are resolved on their merits rather than on the plaintiff’s desperation. That’s not inflationary, it’s restorative. In truth, insurers’ animosity toward CLF stems from the fact that it reduces their negotiating power. When consumers can afford to wait for fair compensation, insurers can no longer close claims cheaply. It’s no surprise, then, that they’ve spent years trying to paint CLF as a villain while quietly raking in record profits.

Record Profits, Record Rate Increases

The insurance industry’s financial health tells the story. Despite claiming heavy losses, major carriers continue to post multi-billion-dollar earnings and pay generous dividends to shareholders. State Farm, for example, defended a 27% home-insurance hike in Illinois by citing actuarial “necessity” while admitting it has made money in 13 of the past 15 years. If any industry merits scrutiny for “excessive” pricing, it’s the one that profits while families struggle to pay their monthly premiums. Consumers can’t shop their way out of this crisis, insurers dominate markets, coordinate rate filings, and benefit from a unique exemption from federal antitrust laws dating back to the 1940s. In other words, insurers already enjoy government protection from true competition. Yet they cry foul when policymakers dare to question their rate hikes or when other industries, like CLF, resist government interference.

The insurance industry’s attacks on Consumer Legal Funding are not about protecting consumers, they’re about protecting profits. Through trade groups and front organizations, insurers have spent millions lobbying for restrictive legislation that would cap CLF rates or require disclosure of funding agreements in litigation. 

Weaponizing “Transparency” to Weaken Plaintiffs

The insurance industry’s call for mandatory disclosure of Consumer Legal Funding agreements is part of a broader strategy to tilt the playing field. Under proposed rules in several states, defendants would gain access to details about how much funding a plaintiff has received, the terms of repayment, and even the identity of the funder. Insurers frame these disclosure requirements as “sunlight” reforms, measures designed to protect the integrity of litigation. In practice, they’re tools of intimidation. With that information, defense attorneys can time lowball offers or drag out discovery to increase financial pressure on plaintiffs, knowing exactly when their resources might run out. This isn’t transparency in the service of justice, it’s transparency as a weapon. By contrast, insurers fiercely protect their own financial secrecy. They refuse to disclose the billions they hold in reinsurance agreements, which allow them to spread risk globally and obscure true profit margins. They guard their claims reserves, the internal estimates that determine how much they expect to pay out, and therefore how much they can safely delay. And they keep confidential their massive defense budgets, funneled to outside law firms that specialize in exhausting plaintiffs through delay and attrition. If transparency truly mattered, insurers would open their own books. Instead, they seek a one-way mirror, plaintiffs are exposed, while insurers remain hidden behind a veil of “proprietary information.” The hypocrisy is unmistakable. Insurers want to know everything about the financial lifeline that allows injured people to survive while waiting for justice, but they reveal nothing about the financial machinery that profits from denying that justice.

The Free Market They Pretend to Defend

David A. Sampson, President of the American Property Casualty Insurance Association, recently lamented in a LinkedIn post (https://www.linkedin.com/posts/david-a-sampson-23a54911_runaway-insurance-costs-bring-back-talk-of-activity-7386111332653223937-2tsL/?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAGWWSgBFESrqDCdnU2Jw-r57mZqFuGuXmQ) that “runaway insurance costs” are fueling talk of government price caps. He warned that rate restrictions would harm the free market and reduce availability of coverage. He’s right about one thing, price controls can distort markets. But what he fails to mention is that insurers have long sought to impose those very controls on Consumer Legal Funding, a product that operates entirely outside the insurance system and poses no risk to public solvency or taxpayer burden. If insurers truly believe in market competition, they should let the market decide the value of Consumer Legal Funding too. Instead, they advocate selective capitalism, deregulation for themselves, regulation for everyone else.

Funding Lives, Not Litigation

Consumer Legal Funding is not the problem, it’s part of the solution. It funds lives, not litigation, helping injured people cover their living expenses while the justice system runs its course. Without CLF, many victims would be forced to accept the first lowball offer insurers put on the table. With it, they can seek fair compensation, hold wrongdoers accountable, and restore balance to an uneven system. That’s not a “tort tax,” it’s access to justice. By contrast, the insurance industry’s soaring rates, opaque pricing, and resistance to oversight impose a very real tax, a premium tax on everyday life. Families across the country are paying hundreds or thousands more each year for coverage that’s less reliable and harder to afford.

Here is The Bottom Line

When insurers complain about rate caps on their own industry, they call it government overreach. When they push for rate caps on Consumer Legal Funding, they call it consumer protection. The inconsistency reveals what’s really at stake, power and profit, not principle. Even the insurance industry’s own leaders acknowledge the dangers of government interference when it affects them. As David Sampson, President of the American Property Casualty Insurance Association, recently wrote on LinkedIn, “Government price controls distort markets and create perverse incentives. Imagine the government telling automakers or builders how much to charge for the cars and homes they make. It’s not a serious solution.”

He’s right, and that same philosophy should apply equally to Consumer Legal Funding. CLF operates in a competitive, private marketplace, where individuals freely choose to engage in non-recourse transactions that help them stay financially stable while pursuing justice. If price controls are misguided and harmful for insurers, then they are equally misguided and harmful when applied to CLF. Those who champion free-market values should apply them equally, giving consumers who rely on Consumer Legal Funding the same liberty to choose that insurers demand for themselves.

Until that happens, efforts to impose disclosure of CLF contracts or artificial rate caps will continue to serve as little more than a diversion from the insurance industry’s own unchecked pricing practices and lack of accountability.

Consumer Legal Funding: Funding Lives, Not Litigation

ARCs Response to US Chamber of Commerce Institute for Legal Reform newsletter titled: Lifting the Shadows: Restating the Case for Reforming Third-Party Litigation Funding (TPLF)

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ARCs Response to US Chamber of Commerce Institute for Legal Reform newsletter titled: Lifting the Shadows: Restating the Case for Reforming Third-Party Litigation Funding (TPLF)

Conflating Two Distinct Concepts

The ILR newsletter opens by presenting Third-Party Litigation Funding (TPLF) as an opaque, investor-driven industry whose hidden influence corrupts the civil justice system. It argues that hidden funders may control litigation, funnel foreign influence into U.S. courts, and leave plaintiffs with diminished recoveries.

However, ILR’s narrative critically blurs the line between commercial litigation financing (funding law firms or corporate claims) and consumer legal funding (funds to individual plaintiffs for personal expenses). The result is a misleading portrayal that paints CLF, used by individuals to pay rent, medical bills, or utilities, as if it were the same beast as high-stakes hedge-fund backed litigation finance. A fair analysis requires distinguishing between the two.

Academic and industry sources consistently emphasize that Consumer Legal Funding is not litigation financing in the sense targeted by ILR’s reforms. In CLF, the funds are provided to the consumer (plaintiff) rather than the law firm or the litigation entity, and are intended for living-expense support, not for paying case costs or influencing strategy. Many state statutes and rules likewise carve out CLF from ordinary litigation funding regimes.

Thus, any effort to regulate “TPLF” broadly cannot simply be applied to CLF without risking regulatory overreach. ILR’s failure to make that distinction undercuts the logic of its proposals.

Key Differences: Why CLF Doesn’t Fit ILR’s Framing

(1) Purpose and Use of Funds

  • Commercial litigation finance / TPLF is typically directed to law firms or legal entities, to pay litigation costs, attorney fees, expert witnesses, discovery, and even to underwrite risk in large-scale claims. These funding agreements often include strategic control rights over settlement terms.
  • Consumer Legal Funding (pre-settlement funding), by contrast, is used by individual plaintiffs to meet personal, non-legal expenses (housing, utilities, groceries) while their case is pending. The funds do not directly pay for litigation costs or legal strategies. State regulators have repeatedly emphasized that CLF is not intended to be used for case costs.

Because CLF funds are for consumption or survival, not to influence or fund litigation, many of ILR’s concerns about “control over case” or “funder coercion” simply do not apply in the CLF context.

(2) Risk and Repayment Structure

  • In TPLF deals, the funder often receives a share of recovery, and if the claim fails, the funder loses its entire investment. This non-recourse structure aligns risk allocation with litigation outcomes.
  • Similarly, CLF is non-recourse: the plaintiff owes nothing if the case fails, and the obligation is extinguished. The difference is that in CLF, the funding is modest and personal, not at the scale of institutional litigation.

Because CLF is not a classic “investment in litigation,” the typical concerns about aligning funder incentives with case strategy or excessive control do not carry over cleanly.

(3) Absence of Funder Control Over Litigation

One of ILR’s key alarmist claims is that funders can veto settlement offers or assert control over litigation direction. Those stories largely come from commercial litigation funding, especially high-stakes cases (e.g. Burford and Sysco) not the realm of small dollar CLF.

In CLF, most contracts and statutory frameworks explicitly prohibit funder control or direction of litigation decisions. Because the funds are for personal needs and the case is managed by the plaintiff’s attorney, there is no structural basis for funders to act as litigation co-counsel or veto strategies.

Thus, ILR’s narrative about funder “control” is largely irrelevant to CLF and at risk of bad inference if applied indiscriminately.

(4) Scale, Secrecy, and Foreign Influence

ILR warns about foreign actors injecting secret funds into U.S. litigation and manipulating outcomes. A consumer legal funder providing $5,000 to an individual plaintiff is not a foreign sovereign, and the amount of influence such an arrangement exerts is minimal.

Moreover, ILR premises much of its fear of opacity: undisclosed funders, hidden agreements, and lack of transparency. But CLF firms contract directly with consumers, often with clear disclosures, and many states already demand reporting or consumer protections. The general call for uniform disclosure rules for TPLF, then, risks unintended consequences if overbroad enough to sweep in CLF.

(5) Access to Justice and Power Imbalances

One of ILR’s weaker strands is the claim that “the U.S. legal system already gives plaintiffs contingency-fee counsel, so TPLF is unnecessary.” But that overlooks the very real liquidity that constraints individual plaintiffs face. Contingency lawyers advance costs, but they do not provide for living expenses while a case is pending, rent, food, all of which may push a plaintiff to settle prematurely. CLF addresses exactly that gap.

If ILR’s reforms sweep CLF into TPLF regulation, plaintiffs with meritorious claims could lose a financial lifeline, constraining access to justice, especially for low-income individuals.

Specific Weaknesses and Logical Gaps in ILR’s Argument

1. Overbroad Framing and Slippery Slope

ILR treats “third-party litigation funding” as a monolithic practice. But as scholars highlight, legal funding is a broad category with multiple subtypes (commercial, consumer, attorney portfolio financing). By conflating all under TPLF, ILR’s reforms risk a slippery slope regulatory incursion into legitimate consumer support mechanisms.

2. Anecdotes from Commercial Cases Do Not Generalize

ILR’s examples, e.g. Burford’s veto power over Sysco settlement offers, are drawn from million-dollar commercial litigation. It does not follow that the same structural risks exist in CLF for small individual plaintiffs. The incentives, scale, and contractual levers differ.

3. Insufficient Evidence or Quantitative Data

ILR’s argument leans heavily on moral panic and selected cases rather than broad empirical study. It cites “ILR’s 2024 research” and other anecdotal studies. But reviews by GAO and other observers note serious data limitations in even measuring TPLF activity. Moreover, GAO itself recognizes “consumer arrangements” as distinct and less understood and does not recommend a one-size-fits-all regulatory regime.

Without robust empirical backing, ILR’s call for sweeping reforms appears premature, especially if misapplied to CLF.

4. Ignores State-Level Safeguards and Carve-Outs

Some U.S. states have already adopted statutes or rules that explicitly exclude consumer legal funding from their definitions of litigation funding or regulate it separately. In Arizona, civil procedure rules carve out consumer funding from procedural obligations for litigation financing. By ignoring these distinctions, ILR’s national push threatens to erase state innovation and create conflict.

5. Defaulting on Access to Justice Tradeoffs

By framing TPLF as corrupting justice, ILR neglects that restricting CLF access might cause injustices. For people without savings, high medical debt, or inability to borrow conventional credit, CLF is the only viable path to survive while pursuing claims. If ILR’s proposals chill CLF, many legitimate claims may go unpursued, weakening enforcement of rights and undermining the plaintiff side of the balance of justice.

What Responsible Policy Should Do

Given the above, a more nuanced approach is warranted a precisely defined regulation is needed. Any regulation of litigation funding should use narrow, context-sensitive definitions that exclude consumer funds used for living expenses. Legislatures and courts must draw lines so that CLF is not caught inadvertently in TPLF regimes.

By contrast, ILR’s proposal appears to push for a blanket “transparency + control restraints” regime without regard to the enormous functional differences between CLF and commercial litigation funding.

Conclusion

Consumer Legal Funding is a distinct financial tool, with different incentives, beneficiaries, and safeguards. ILR’s failure to distinguish CLF from TPLF leads it to overstate risks and proposes reforms that could unduly harm consumers with meritorious claims.

Any serious policy must start with clear definitions, carve out CLF from core TPLF regulation, and calibrate oversight to risk. A one-size-fits-all regulatory attack on “third-party funding” is neither just nor wise.