New York Implements Regulations on Consumer Litigation Financing
New York State has introduced a significant new law aimed at regulating the consumer litigation funding industry. This law provides financial assistance to individuals for living expenses while their legal cases are ongoing, in exchange for a portion of any settlement or judgment they may receive.
Under these funding agreements, consumers are only required to repay the loan if they win their case. However, it is important to note that the interest rates and fees associated with these funds can be quite high. To address this issue, the new law imposes a cap on the amount that lenders can take from any settlement or judgment.
Titled the Consumer Litigation Funding Act (Assembly Bill A804-C/Senate Bill S.1104A), this legislation establishes mandatory contract and disclosure requirements. These provisions are designed to ensure that consumers are fully informed about the terms of their contracts.
Consumer litigation funders typically provide cash advances to cover essential living expenses, such as medical bills, rent, food, and utility payments, particularly for individuals involved in personal injury, tort, or employment lawsuits.
Supporters of the measure argue that it is necessary due to the rapid growth of the financing industry, which has seen some “bad actors” charging exorbitant fees and engaging in unethical practices.
The law limits the recovery amount for consumer litigation funding companies to a maximum of 25% of the gross recovery from the litigation. Additionally, it prohibits the enforcement of prepayment penalties, ensuring that consumers are not penalized for paying off their loans early.
Furthermore, the law mandates that all litigation funding contracts be written in plain language, making them easier for consumers to understand. It also guarantees consumers a 10-day right of rescission, allowing them to reconsider their decision after signing the contract.
Importantly, the act stipulates that third-party funding companies cannot influence settlement decisions, mislead consumers through advertising, or refer clients to specific attorneys or medical providers.
This legislation was signed into law on December 19, 2025, by Governor Kathy Hochul and is set to take effect 180 days later, in June. Notably, it will not apply to any contracts that were agreed upon before its effective date.
The American Legal Finance Association (ALFA) has expressed support for the new law, stating that it “establishes clear, statewide standards for transparency, fairness, and accountability in New York’s legal funding industry while preserving access to justice for individuals pursuing legal claims.”
It is important to note that this new law specifically addresses consumer litigation funding and does not extend to commercial litigation or law firm funding. The latter has faced criticism from insurers for allegedly contributing to lawsuit abuse and inflating awards and insurance costs. Commercial litigation financing is often backed by private equity firms, hedge funds, specialized finance companies, or affluent individuals.
As part of the new regulations, New York’s consumer finance companies are now required to submit a registration application to the state. This application will be evaluated based on the company’s character, fitness, and financial stability. Additionally, the application must include a bond and receive state approval before a certificate of registration can be issued.
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New York State has introduced a significant new law aimed at regulating the consumer litigation funding industry. This law provides financial assistance to individuals for living expenses while their legal cases are ongoing, in exchange for a portion of any settlement or judgment they may receive.
Under these funding agreements, consumers are only required to repay the loan if they win their case. However, it is important to note that the interest rates and fees associated with these funds can be quite high. To address this issue, the new law imposes a cap on the amount that lenders can take from any settlement or judgment.
Titled the Consumer Litigation Funding Act (Assembly Bill A804-C/Senate Bill S.1104A), this legislation establishes mandatory contract and disclosure requirements. These provisions are designed to ensure that consumers are fully informed about the terms of their contracts.
Consumer litigation funders typically provide cash advances to cover essential living expenses, such as medical bills, rent, food, and utility payments, particularly for individuals involved in personal injury, tort, or employment lawsuits.
Supporters of the measure argue that it is necessary due to the rapid growth of the financing industry, which has seen some “bad actors” charging exorbitant fees and engaging in unethical practices.
The law limits the recovery amount for consumer litigation funding companies to a maximum of 25% of the gross recovery from the litigation. Additionally, it prohibits the enforcement of prepayment penalties, ensuring that consumers are not penalized for paying off their loans early.
Furthermore, the law mandates that all litigation funding contracts be written in plain language, making them easier for consumers to understand. It also guarantees consumers a 10-day right of rescission, allowing them to reconsider their decision after signing the contract.
Importantly, the act stipulates that third-party funding companies cannot influence settlement decisions, mislead consumers through advertising, or refer clients to specific attorneys or medical providers.
This legislation was signed into law on December 19, 2025, by Governor Kathy Hochul and is set to take effect 180 days later, in June. Notably, it will not apply to any contracts that were agreed upon before its effective date.
The American Legal Finance Association (ALFA) has expressed support for the new law, stating that it “establishes clear, statewide standards for transparency, fairness, and accountability in New York’s legal funding industry while preserving access to justice for individuals pursuing legal claims.”
It is important to note that this new law specifically addresses consumer litigation funding and does not extend to commercial litigation or law firm funding. The latter has faced criticism from insurers for allegedly contributing to lawsuit abuse and inflating awards and insurance costs. Commercial litigation financing is often backed by private equity firms, hedge funds, specialized finance companies, or affluent individuals.
As part of the new regulations, New York’s consumer finance companies are now required to submit a registration application to the state. This application will be evaluated based on the company’s character, fitness, and financial stability. Additionally, the application must include a bond and receive state approval before a certificate of registration can be issued.
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