What's Happening?
New York State has enacted a new law regulating the consumer litigation financing industry, which provides funds to individuals for living expenses while their legal cases are pending. This financial assistance is offered in exchange for a portion of any
settlement or judgment. The law, known as the Consumer Litigation Funding Act, was signed by Governor Kathy Hochul on December 19, 2025, and will take effect in June 2026. It introduces mandatory contract and disclosure requirements to ensure transparency and consumer awareness. The law caps the recovery by litigation funding companies at 25% of the gross recovery and prohibits prepayment penalties. It also mandates that contracts be written in plain language and grants consumers a 10-day right of rescission. The legislation aims to curb exploitative practices by some companies in the growing industry.
Why It's Important?
The regulation of consumer litigation financing in New York is significant as it addresses concerns about high interest rates and fees that have been charged by some companies in the industry. By capping the recovery amount and enforcing transparency, the law seeks to protect consumers from predatory practices while maintaining their access to necessary funds during legal proceedings. This move could set a precedent for other states to follow, potentially leading to nationwide reforms in the litigation financing sector. The law also highlights the balance between consumer protection and access to justice, ensuring that individuals can pursue legal claims without being financially overburdened.
What's Next?
As the law takes effect in June 2026, consumer finance companies in New York will need to comply with the new regulations, including submitting a registration application to the state. This application will be evaluated based on the company's character, fitness, and financial stability. The American Legal Finance Association has expressed support for the law, indicating that it establishes clear standards for transparency and fairness. The impact of this regulation on the broader litigation financing industry, particularly in terms of influencing practices in other states, will be closely monitored by stakeholders.
