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

Recent criticism has raised questions about cost, Wall Street investment, settlement influence, medical treatment, litigation costs and consumer protection. Those questions deserve answers. But the answers should begin with what Consumer Legal Funding actually is, how consumers use it, and the protections states are putting into law.

A Debate That Needs More Precision

Consumer Legal Funding has become the subject of increasingly negative headlines. Some articles characterize the product as a “lawsuit loan” or “predatory lending.” Others connect it to Wall Street securitization, social inflation, nuclear verdicts, medical treatment, prolonged litigation or outside influence over settlements. Still others discuss Consumer Legal Funding in the same breath as multimillion-dollar commercial Third-Party Litigation Financing.

Those are serious claims. Consumers deserve transparency. The legal system must remain independent. Attorneys must exercise their own professional judgment. Funding companies should not control settlements, direct medical treatment or pay improper referral fees.

But a serious debate also requires precision. Allegations involving a particular company should not define an entire industry. Commercial litigation investments should not be treated as interchangeable with funds provided to an injured consumer for household expenses. And criticism should be weighed against something frequently missing from the discussion: what consumers themselves say about why they use the product and whether it helped them.

ARC’s 2026 Consumer Legal Funding Survey provides that perspective. Across most survey questions, 576 consumers responded. The results portray a product being used during genuine household financial disruption, not as a mechanism for financing litigation.

Start With the Consumer, Not the Lawsuit

The typical need for Consumer Legal Funding begins after the event giving rise to the legal claim has already occurred. A person is injured, income is interrupted, and household obligations continue while an insurance claim or lawsuit remains unresolved.

According to ARC’s 2026 survey, 72.08% of respondents were not employed when they received Consumer Legal Funding. Among respondents addressing the reason, 65.72% said their lack of employment resulted from the circumstances that created the need for funding, such as an automobile accident.

The financial pressure was basic and immediate. 73.03% reported struggling with rent or mortgage payments, 61.30% with utilities and 60.07% with food. The survey did not depict consumers primarily seeking money for attorneys, experts, depositions or court costs. It depicted people trying to maintain ordinary household stability while a legal claim remained pending.

That distinction is now reflected in law. Kansas’s Transparency in Consumer Legal Funding Act defines Consumer Legal Funding as a non-recourse transaction involving a contingent right to potential proceeds and expressly states that the funds are used for household or personal expenses, not expenses directly related to prosecuting the legal claim. Utah’s 2026 law separately defines consumer maintenance funding and commercial maintenance funding.

That is not semantics. It is the difference between funding a person’s life during litigation and funding the litigation itself.

Wall Street, Securitization and the Underlying Consumer Transaction

Recent reporting has focused heavily on Consumer Legal Funding receivables being financed or securitized by institutional investors. That may sound far removed from the consumer who needs help paying rent, but two questions should be separated.

How a funding company obtains capital is one question. What rights the company obtains from the consumer is another.

Institutional capital does not by itself determine whether the consumer received clear disclosures, whether the transaction was non-recourse, whether the company can influence the claim, or whether the funds were used for household expenses. Those questions are governed by the contract and, increasingly, state law.

There is also an important caution about using broader allegations of personal-injury fraud to support criticism of Consumer Legal Funding. The New York Times article discussing Wall Street investment also referenced lawsuits brought by Uber alleging that personal-injury law firms and medical providers conspired to pursue exaggerated or fabricated injury claims. Yet just days before the Times article was published, a federal judge in New York dismissed Uber’s case against three personal-injury firms and related defendants. The court concluded that Uber had not plausibly alleged the RICO conspiracy it claimed and had not yet established the required injury. The dismissal does not establish that every underlying personal-injury claim was legitimate, and Uber has pursued similar litigation elsewhere. But it is an important reminder that allegations contained in a lawsuit are not the same as proven facts and should not be used to characterize Consumer Legal Funding generally.

Kansas law even distinguishes the Consumer Legal Funding company from banks, lenders, financing entities and special-purpose entities that finance the company or receive security interests in contracts. Securitization can be a legitimate subject for oversight, but it should not replace analysis of the actual consumer transaction.

The “Predatory Lending” and Cost Criticism

One of the most common criticisms is that Consumer Legal Funding is expensive. Articles frequently convert charges into annualized percentage rates, highlight compounding, or present examples in which the amount due grows substantially while a case remains unresolved.

Cost matters. Consumers should know what they are agreeing to pay, how charges accumulate and the maximum amount that can become due. But calling the transaction a high-interest “loan” can leave out an essential feature: Consumer Legal Funding is non-recourse.

Unlike conventional recourse credit, repayment depends on a recovery from the legal claim. Kansas law requires the contract to state that if there is no recovery, the consumer owes nothing to the funding company, absent fraud or a material contractual violation. California similarly defines Consumer Legal Funding as a non-recourse transaction involving the purchase of a contingent right to potential legal proceeds.

That does not make price irrelevant. It makes transparency more important.

Modern state regulation addresses that concern directly. Kansas requires contracts to clearly disclose the funded amount, one-time charges, how charges accrue, a payment schedule and the maximum total amount the consumer may be obligated to pay. It also provides a 10-business-day right to cancel. New York likewise requires clear contracts, disclosure of charges and maximum obligations, and a rescission period.

The constructive response to concerns about cost is not to pretend cost does not matter. It is to ensure consumers receive understandable information before entering the transaction and meaningful time to reconsider it.

Do Consumers Understand What They Are Signing?

Another recurring criticism is that financially stressed consumers may not understand the agreements they enter.

The ARC survey provides a direct consumer-reported counterpoint. 87.70% of respondents said they fully understood the terms of their contract, while 90.42% said they understood their financial obligations.

Those numbers should not be used to argue that disclosure requirements are unnecessary. They support the opposite conclusion: understandable contracts and meaningful disclosures should be the standard.

Kansas requires contracts to use common, everyday language and to be completely filled in before presentation to the consumer. New York similarly requires contracts to be clear and coherent and requires attorney acknowledgment that mandatory disclosures have been reviewed with the consumer. These protections are designed to reinforce informed decision-making rather than substitute for it.

The survey also provides another important measure of consumer experience: 90.70% said they would use Consumer Legal Funding again if they were in need, and 87.35% said they would recommend the company they worked with.

No survey means every consumer had a positive experience. But those results deserve to be part of any discussion that portrays consumers broadly as victims of a product they neither understand nor value.

Can a Funder Control a Settlement or Prolong Litigation?

Some of the most serious criticism suggests that funding companies may prevent settlements, pressure consumers to hold out for larger recoveries or interfere with an attorney’s professional judgment.

Consumer Legal Funding companies do not operate that way.

Kansas law states that a funding company has no role in deciding whether, when or for how much a legal claim is settled. It may seek information about the status of the claim, but it may not interfere with the independent professional judgment of the attorney.

That also addresses the broader claim that Consumer Legal Funding necessarily prolongs lawsuits. A consumer receiving funds for rent or utilities does not transfer control of the legal claim to the funding company. Settlement decisions remain with the consumer, advised by counsel.

At the same time, a consumer facing eviction, utility shutoff or difficulty buying groceries may experience intense pressure to resolve a claim quickly for reasons unrelated to its legal merits. Consumer Legal Funding is intended to provide household liquidity during that period, not dictate when a case settles.

Referrals and Individual Allegations

Recent media coverage has also highlighted allegations involving referrals and relationships among funders, lawyers and medical providers. These allegations warrant careful attention, but different financial arrangements should not be collapsed into a single category.

Modern laws also address referral relationships. Kansas prohibits funding companies from paying or accepting commissions, referral fees or other consideration involving attorneys, law firms and specified medical providers. It also restricts attorneys and their immediate family members from holding certain financial interests in a funding company serving the attorney’s consumer. California prohibits specified commissions and referral fees to attorneys and law firms. New York requires attorney acknowledgment concerning referral consideration.

If an individual company is alleged to have crossed those lines, the facts should be investigated and the applicable law enforced. But alleged misconduct is an argument for enforceable standards, not for treating prohibited conduct as the defining feature of Consumer Legal Funding.

Nuclear Verdicts, Social Inflation and the Conflation Problem

Insurance, trucking and tort-reform commentary increasingly connects “litigation funding” with nuclear verdicts, social inflation, higher insurance costs and a so-called tort tax.

The problem is that “litigation funding” can describe very different products.

Commercial Third-Party Litigation Financing may involve multimillion-dollar investments used to finance litigation expenses. Attorney portfolio financing and medical financing involve other arrangements. Consumer Legal Funding, by contrast, is a consumer-facing, non-recourse transaction designed to provide funds for personal and household needs.

Evidence concerning one category should not automatically be treated as evidence concerning another. The ARC survey reinforces the point: consumers reported struggling with housing, utilities and food. Kansas law expressly says Consumer Legal Funding does not include expenses directly related to prosecuting the claim, and Utah distinguishes consumer and commercial funding in statute.

If critics contend that Consumer Legal Funding itself causes nuclear verdicts or social inflation, the appropriate question is straightforward: what evidence specifically connects this consumer product to that outcome? Broad statistics about commercial litigation investment or aggregate tort costs do not answer that question by themselves.

The Claim That Consumer Legal Funding Is Unregulated

Another recurring impression is that Consumer Legal Funding operates in an unregulated environment. That description is increasingly difficult to square with the laws states have enacted.

Kansas requires clear contracts, extensive disclosures, a 10-business-day rescission period, a maximum repayment disclosure, attorney involvement, prohibitions on improper referrals, restrictions on funder control and enforcement authority.

New York’s Consumer Litigation Funding Act establishes regulation addressing disclosures, registration, attorney responsibilities, rescission, prohibited conduct and repayment. California’s Consumer Legal Funding Act regulates contract terms, referrals, disclosures and the period during which charges can accrue. Utah requires registration and disclosures, restricts certain attorney-provider relationships and expressly separates consumer from commercial funding.

Missouri has also enacted statutory provisions governing Consumer Legal Funding as part of its broader legislation addressing judicial proceedings.

These approaches are not identical, and reasonable policymakers can disagree about particular regulatory details. But collectively they demonstrate that there is a workable middle ground between no regulation and eliminating the product.

Consumer protection and consumer access do not have to be opposing goals.

Listen to the Consumers

The recent scrutiny of Consumer Legal Funding can serve a useful purpose if it produces better information, stronger standards and more precise distinctions.

Consumers should understand the cost. Contracts should clearly state what may be owed. Funding companies should not control settlements. Attorneys should remain independent. Improper referrals should be prohibited. Consumer funds should not be confused with money used to prosecute litigation. Allegations of misconduct should be investigated and violations enforced.

Those principles are increasingly embedded in state law.

But the debate should also include the people who use the product. ARC’s 2026 survey found consumers facing disrupted employment and difficulty paying for housing, utilities and food. It found high reported understanding of contracts and financial obligations. More than nine in ten respondents said they would use Consumer Legal Funding again if they needed it, and nearly nine in ten would recommend their funding company.

That does not eliminate every policy question. It does show that many consumers believe the product has value during a difficult period in their lives.

The better approach is not to ignore criticism or eliminate consumer choice. It is to address legitimate concerns with clear disclosures, rescission rights, attorney safeguards, prohibitions on interference, restrictions on improper financial relationships and effective enforcement, while preserving access to a non-recourse product designed to help consumers meet household needs while legal claims are pending.

Consumer Legal Funding: Funding Lives, Not Litigation.