A New York Times investigation published Wednesday reports that some of the largest consumer legal funding companies are bundling cash advances made to personal injury plaintiffs into asset-backed securities sold to investors, and examines how that financing cycle interacts with a sharp rise in personal injury litigation.

As reported by The New York Times, reporters Ellen Gabler, Robert Gebeloff and Julie Tate identified six major funders that securitize their advances, accounting for more than 90% of advances nationwide according to industry trade group figures. The Times found more than two dozen securitization deals since 2020, representing hundreds of thousands of cases and raising $2.8 billion from investors. Advances carry fees and interest averaging 35% to 45% a year, and in one cited example a New York plaintiff who received $76,500 in advances owed at least $1.4 million by the time her case settled.

The article situates this alongside a 70% increase in personal injury filings in state courts over the past decade, and notes that since 2023 companies including Geico, Allstate, Uber and FedEx have brought at least 60 civil racketeering suits accusing lawyers and medical providers of inflating claims. Funders quoted in the piece dispute that fraud is widespread, with the American Legal Finance Association's Jack Kelly arguing that cutting off securitization would cut off the supply of money to victims. The Times also reports that more than a dozen states have restricted third-party litigation funding, with West Virginia the first to explicitly limit securitization.

The Alliance for Responsible Consumer Legal Funding responded to the report by calling for regulation rather than restriction.

"Some of the conduct described in The New York Times article is exactly the type of conduct responsible regulation should prevent," said Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding. "New York has now put strong protections in place that directly address many of these concerns, while states such as Kansas have adopted similarly comprehensive regulatory frameworks. The answer is not to take Consumer Legal Funding away from injured consumers who need help paying their rent, mortgage, utilities or putting food on the table while their case moves through the legal system. The answer is to establish clear rules, enforce those rules and hold anyone who violates them accountable. Responsible regulation protects consumers while preserving access to Consumer Legal Funding for the people who truly need it."

The following was contributed by Eric K. Schuller, President, The Alliance for Responsible Consumer Legal Funding (ARC).

America’s trucking industry deserves a fair civil justice system. So do injured consumers. Those principles are not in conflict.

In his recent Transport Topics commentary, “Truckers Deserve Lawsuit Transparency,” American Trucking Associations Chairman Greg Hodgen raises concerns about third-party litigation financing. He describes hedge funds, private equity firms and foreign sovereign wealth funds investing in lawsuits for profit.

Those concerns deserve discussion. But that discussion becomes problematic when Consumer Legal Funding is swept into the same category.

They are fundamentally different products.

Consumer Legal Funding is not Wall Street financing a lawsuit. It is not a hedge fund paying attorneys’ fees or litigation expenses. And it does not give a funding company control over litigation strategy or settlement decisions.

Consumer Legal Funding provides relatively small amounts of financial assistance directly to individuals who have pending legal claims and need help paying ordinary household expenses while those claims are resolved.

Simply put, it is funding lives, not litigation.

Consider the Independent Truck Driver

The trucking industry itself provides a good example of why Consumer Legal Funding exists.

Consider an independent truck driver who is seriously injured when another vehicle runs a red light and crashes into his truck.

The accident was not his fault, but suddenly he cannot work.

For an independent driver, that can mean his income stops immediately. Yet his mortgage or rent remains due. He still has to buy groceries, keep the electricity on, make vehicle payments and support his family.

His attorney may be pursuing a legitimate claim against the responsible party, but claims do not get resolved overnight. The defendant may have the resources to wait months for a settlement. The independent truck driver may not.

A Consumer Legal Funding company might provide him with $4,000 to help pay those household expenses while his claim is pending.

That money does not pay his lawyer. It does not pay an expert witness. It does not finance the lawsuit. And the funding company does not tell his attorney how to handle the case or whether to accept a settlement.

It helps the truck driver keep his family financially stable while he waits for the legal system to work.

And because Consumer Legal Funding is non-recourse, if he receives no recovery from his legal claim, he owes the funding company nothing.

That truck driver is not part of the litigation financing problem described in Hodgen’s article. He is a consumer who needs financial help because of an accident that was not his fault.

The Distinction Matters

Hodgen describes investors “pouring money into civil litigation” and argues that outside capital can fuel inflated claims and settlement demands. He also raises concerns that third-party financiers can discourage settlements when their financial interests depend on obtaining a larger recovery.

Those concerns do not accurately describe Consumer Legal Funding.

Consumer Legal Funding companies do not determine whether a lawsuit is filed. They do not select the consumer’s attorney. They do not direct litigation strategy. They do not determine the value of a claim or decide whether a settlement should be accepted.

Those decisions remain with the consumer and the consumer’s attorney.

There is also an enormous difference in scale. Consumer Legal Funding typically involves relatively modest amounts, often approximately $3,000 to $5,000, provided directly to an individual consumer. Commercial litigation financing can involve millions of dollars invested in individual lawsuits, law firms or portfolios of cases.

Policymakers should not treat those transactions as interchangeable simply because both have been placed under the broad umbrella of “litigation financing.”

Consumer Legal Funding Can Help Prevent Forced Settlements

There is another side to this debate that deserves greater attention.

Financial pressure can influence litigation decisions just as surely as outside investment can.

Imagine that independent truck driver again. His attorney believes the claim is worth substantially more than the insurance company is offering, but it may take another six months to reach a fair resolution.

The defendant can wait.

The truck driver facing next month’s mortgage payment may not be able to.

Without some financial breathing room, he could be forced to accept an early settlement, not because it fairly compensates him for his injuries, but because his family needs money immediately.

Consumer Legal Funding can help level that imbalance.

It does not guarantee a larger settlement. It simply gives the consumer something critically important: time to make a decision based on the merits of the claim rather than immediate financial desperation.

Non-Recourse Is Not Traditional Lending

Hodgen’s article also characterizes certain litigation financing arrangements as “predatory lending.”

But Consumer Legal Funding is fundamentally different from a traditional loan because repayment is contingent upon the consumer recovering proceeds from the underlying legal claim.

If there is no recovery, the consumer owes nothing.

The funding company therefore assumes the risk that it may receive less than the contracted amount or nothing at all.

That distinction matters and should be recognized when policymakers consider how these products should be treated.

Transparency Should Be Relevant to the Litigation

The article argues that litigation financing arrangements should be disclosed because defendants may otherwise be unaware that an outside party has a financial interest in a lawsuit.

That argument may be relevant when a commercial litigation financier possesses contractual rights that could influence litigation strategy or settlement.

Consumer Legal Funding presents a very different situation.

If the funding company cannot control the litigation, cannot select the attorney and cannot decide whether a consumer accepts a settlement, what legitimate purpose is served by automatically giving the defendant or its insurer access to the consumer’s private financial contract?

If a judge determines that a particular agreement is relevant to an issue in a case, normal discovery procedures can address it.

Automatic disclosure, however, could reveal something very different: how financially vulnerable the plaintiff is.

The defendant learning that an injured consumer needed funding to pay rent, utilities or groceries could gain information about how long that consumer can financially withstand litigation. That risks creating leverage for the very party with the resources to wait.

Truckers and Consumers Should Not Be Pitted Against Each Other

Hodgen makes an important point when he emphasizes that more than 90% of motor carriers operate 10 trucks or fewer.

Those businesses deserve protection from fraudulent lawsuits, staged accidents and abusive litigation practices.

But an independent truck driver injured through someone else’s negligence deserves protection too.

These goals can coexist.

Congress can address multimillion-dollar commercial investments in litigation without treating a $4,000 funding used to keep an injured family in its home as the same product.

It can demand transparency when outside investors exercise control or influence over litigation without automatically exposing an individual consumer’s personal financial circumstances to defendants and insurance companies.

Regulate the Product, Not the Label

The real problem is that “third-party litigation financing” has become an umbrella term covering very different products.

Policymakers should distinguish between commercial litigation financing, where institutional capital may finance litigation, law firms or portfolios of cases, and Consumer Legal Funding, where relatively small amounts are provided directly to individuals for personal and household expenses.

Hodgen concludes his article by calling for “transparency, accountability and fairness in our courts.”

We agree.

But fairness requires precision.

A hedge fund investing millions of dollars in litigation is not the same as an independent truck driver receiving $4,000 to make his mortgage payment and put food on the table after an accident that was not his fault.

One is funding litigation. The other is helping fund someone's life while the litigation runs its course.

America’s truckers deserve a fair civil justice system. So do America’s consumers.

Protecting one does not require harming the other.

Consumer Legal Funding is not the problem. For consumers facing financial hardship through no fault of their own, it can be the lifeline that allows them to keep their families financially stable while they wait for the justice system to work.