What's Happening?
New York State has enacted a new law aimed at regulating the consumer litigation financing industry. This industry provides consumers with financial advances for living expenses while their legal cases
are pending, in exchange for a portion of any settlement or judgment. The new legislation, known as the Consumer Litigation Funding Act, was signed into law by Governor Kathy Hochul on December 19, 2025, and will take effect in June 2026. The law introduces mandatory contract and disclosure requirements to ensure transparency and consumer awareness. It caps the recovery by litigation funding companies to a maximum of 25% of the gross recovery and prohibits prepayment penalties. Additionally, the law mandates that contracts be written in plain language and grants consumers a 10-day right of rescission. The act also restricts these companies from influencing settlement decisions or misleading consumers through advertising.
Why It's Important?
The regulation of consumer litigation financing is significant as it addresses concerns over 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 aims to protect consumers from exploitative practices. This is particularly important for individuals involved in personal injury, torts, or employment lawsuits who rely on these funds for essential living expenses. The law is expected to enhance consumer protection while maintaining access to necessary financial resources during legal proceedings. The American Legal Finance Association has expressed support for the law, highlighting its role in establishing statewide standards for fairness and accountability in the legal funding industry.
What's Next?
As the law takes effect in June 2026, consumer finance companies in New York will be required to submit a registration application to the state, demonstrating their character, fitness, and financial stability. This process includes providing a bond and obtaining state approval before a certificate of registration is issued. The law does not address commercial litigation financing, which remains a separate issue often criticized for contributing to lawsuit abuse. The implementation of this law may prompt other states to consider similar regulations, potentially leading to broader changes in the consumer litigation financing landscape across the U.S.
