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CFLF Announces Relaunch of Campaign to Reform Consumer Lawsuit Lending 

February 1, 2024

CFLF Announces Relaunch of Campaign to Reform Consumer Lawsuit Lending 

Consumers for Fair Legal Funding (CFLF) — a coalition of community groups, social justice organizations, and business interests across New York — today announced the relaunch of its push for commonsense reform of the unregulated and predatory lawsuit lending industry.  The coalition’s founding members have been joined by two of the best-known ride-hailing companies — Uber and Lyft. Uber is the nation’s largest insurance consumer and is committed to ensuring both affordable coverage and safety for drivers and riders alike.  “Uber drivers operate in every corner of the state and are critical to helping New Yorkers get around, while also playing an important role in supporting the local economy,” said Hayley Prim, Senior Policy Manager at Uber. “The unchecked lawsuit lending industry is driving insurance costs up, consuming an ever-larger share of fares, and making it harder for drivers to earn a living. Lawmakers need to establish some simple rules to reign in lenders and protect hardworking individuals statewide.”  “Steadily rising insurance costs are the biggest hurdle to keeping rides affordable and paying drivers more,” said Megan Sirjane-Samples, Director of Public Policy at Lyft. “If we can curb — or better yet, reduce — these costs, the savings are going to go directly back into drivers’ pockets and help lower fares. Without putting in place some commonsense regulations, the lawsuit lending industry will continue to boom, and consumers and hardworking New Yorkers will pay the price.”  Over the past decade, lawsuit lending — also known as third-party litigation funding, litigation financing, or car accident loans — has grown into a multibillion-dollar global industry, with lenders funded by deep-pocketed hedge funds and foreign interests. A 2022 study found that increased litigation, fueled by unchecked and unregulated lawsuit lending, contributes to rising insurance costs. That’s something New York, with the nation’s second-highest average insurance premiums, can’t afford.  CFLF was launched in 2022 to push for lawsuit lending reform that would preserve an important funding stream for vulnerable individuals in need of funds — often to cover medical bills or living expenses as they await the outcome of legal action — while protecting them from unscrupulous lenders. CFLF supports both an interest rate cap on lawsuit loans and transparency in the lawsuit lending process to expose conflicts of interest and create a level playing field for all.  Unbanked and underbanked individuals — frequently members of communities of color — are often targeted by lenders who promise them fast cash by borrowing against expected legal settlements. With no limit on interest rate caps, lenders can charge up to 100 percent — or more — and borrowers can end up owing most or all of their eventual settlement or jury award to a lender, ending up with very little of their settlement or even in debt.  “If the governor and lawmakers are truly committed to a robust and equitable consumer protection agenda this session, they will pass lawsuit lending reform,” said the Rev. Kirsten John Foy, faith leader and founder of CFLF member Arc of Justice, who is himself a lawsuit lending victim. “At a time when New Yorkers are struggling and the state faces a budget deficit, this issue is an easy way to protect vulnerable individuals — at no additional cost to the taxpayers.”  Lawsuit lending firms are expanding in New York — one of the four most attractive states for those looking to invest in the industry. Unprincipled lenders have been known to pursue anyone without a financial safety net, even taking advantage of unhoused and wrongly convicted New Yorkers.  To learn more about CFLF and efforts to enact commonsense reforms on lawsuit lending, visit https://fairlegalfunding.org/.

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Consumer

Consumer Legal Funding Is Not a Loan, Courts and Economists Agree

By John Freund |

The debate over whether consumer legal funding should be classified as a loan continues to surface in regulatory and policy circles, but legal doctrine and economic analysis consistently point in the opposite direction. Consumer legal funding is a non-recourse financial transaction tied to the outcome of a legal claim. If the consumer does not recover in their case, they owe nothing. This defining feature alone places the product outside the traditional boundaries of consumer lending, which requires repayment regardless of outcome and typically involves credit underwriting, collateral, and enforceable debt obligations.

An article in the National Law Review explains that courts and legislatures across the United States have repeatedly recognized this distinction. Rather than viewing consumer legal funding as borrowed money, courts have treated these arrangements as the purchase of a contingent interest in a future settlement or judgment. Because repayment is entirely dependent on case success, judges have found that the economic substance of the transaction does not resemble a loan, nor does it fit neatly within existing consumer credit frameworks.

Judicial decisions from multiple jurisdictions underscore this point. Courts have emphasized that consumers face no personal liability, no collection efforts, and no obligation to repay from their own assets. These factors are incompatible with the legal definition of a loan, which presumes a fixed obligation to repay principal and interest. As a result, attempts to recharacterize consumer legal funding as lending have largely failed when scrutinized under established legal standards.

From an economic perspective, consumer legal funding plays a distinct role in the civil justice system. It provides liquidity to plaintiffs who may be facing prolonged litigation and financial pressure, often helping them avoid accepting premature or undervalued settlements. Treating these transactions as loans could impose regulatory requirements that are poorly suited to non-recourse funding and risk limiting consumer access to a product designed to mitigate imbalance between individual plaintiffs and well-resourced defendants.

Consumer

Legal-Bay Hails New York Litigation Funding Act as Industry Milestone

By John Freund |

Legal Bay has praised New York Governor Kathy Hochul for signing the New York Litigation Funding Act into law, describing the legislation as a landmark step that finally provides a clear regulatory framework for consumer litigation funding in the state. The new law represents a significant development for an industry that has operated for years amid legal uncertainty in one of the country’s most active litigation markets.

A Legal Bay press release notes that the legislation establishes a comprehensive set of consumer protections and regulatory standards governing litigation funding transactions in New York. Legal Bay characterized the law as the product of more than two decades of policy development and sustained advocacy efforts by industry participants and consumer access to justice groups. The company emphasized that the statute provides long needed clarity by formally recognizing consumer litigation funding as a non recourse financial transaction rather than a traditional loan.

Under the new framework, funded plaintiffs are only required to repay advances if they obtain a recovery in their legal claims. Supporters of the law argue that this distinction is critical in protecting consumers from additional financial risk while ensuring that individuals with meritorious claims are able to cover basic living expenses during the often lengthy litigation process. Legal Bay highlighted that litigation funding can help plaintiffs avoid accepting early settlements driven by financial pressure rather than the merits of their cases.

Legal Bay also acknowledged the role played by New York lawmakers in advancing the legislation through the state legislature, noting that the law strikes a balance between consumer protection and preserving access to funding. According to the company, the statute promotes transparency, fairness, and stability in a market that continues to grow in both size and sophistication.

Consumer

New York Enacts Consumer Litigation Funding Act Impacting Litigation Finance

By John Freund |

New York has enacted a new Consumer Litigation Funding Act, establishing a formal regulatory framework for third party litigation funding transactions involving consumers. The law, signed by Governor Kathy Hochul in December, introduces new registration requirements, disclosure obligations, and pricing restrictions aimed at increasing transparency and limiting costs for funded claimants.

As reported in Be Insure, litigation funders must register with the state and comply with detailed consumer protection rules. Funding agreements are required to clearly disclose the amount advanced, all fees and charges, and the total amount that may be owed if the case is successful.

Consumers must initial each page of the agreement and are granted a ten day cooling off period during which they may cancel the transaction without penalty. The law also prohibits funders from directing litigation strategy or interfering with the professional judgment of attorneys, preserving claimant and counsel independence.

One of the most significant provisions is a cap on the total charges a funder may collect, which is limited to 25 percent of the gross recovery. Prepayment penalties are unenforceable, and attorneys representing funded plaintiffs are prohibited from holding a financial interest in a litigation funding company. For the first time, consumer litigation funding in New York is brought under the state’s General Business Law, replacing years of relatively limited oversight with a comprehensive statutory regime.

Supporters of the legislation argue that the law addresses concerns about excessive costs and abusive practices while providing clarity for an industry that has operated in a regulatory gray area. Industry critics, however, have raised questions about whether pricing caps could restrict access to funding for higher risk claims.