Consumer Legal Funding: Support for People, Not Control Over Litigation
The following was contributed by Eric K. Schuller, President, The Alliance for Responsible Consumer Legal Funding (ARC).
Summary: Consumer legal funding (CLF) is a non-recourse financial product that helps people meet essential living expenses while their legal claims are pending. It does not finance lawsuits, dictate strategy, or control settlements. In fact, every state that has enacted CLF statutes has explicitly banned providers from influencing the litigation process.
1) What Consumer Legal Funding Is
CLF provides modest, non-recourse financial assistance, typically a few thousand dollars to individuals awaiting resolution of a claim. These funds are used for rent, food, childcare, or car payments, not for legal fees or trial costs. If the case is lost, the consumer owes nothing.
CLF is not an investment in lawsuits or law firms, it is an investment in the consumer.
2) Why Control Is Banned
The attorney–client relationship is central to the justice system. CLF statutes protect it by prohibiting funders from interfering. Common provisions include:
– No control over litigation strategy or settlement.
– No right to select attorneys or direct discovery.
– No settlement vetoes. Only the client, guided by counsel, makes those decisions.
– No fee-sharing or referral payments.
– No practice of law. Funders cannot provide legal advice.
These bans are spelled out in statutes across the country. Violating them exposes providers to penalties, voided contracts, and regulatory action.
3) Non-Recourse Structure Removes Leverage
Control requires leverage, but CLF offers none. Because repayment is only due if the consumer recovers, providers cannot demand monthly payments or seize assets. They do not fund litigation costs, so they cannot threaten to cut off discovery or expert testimony. The consumer retains ownership of the claim and full authority over all decisions.
4) Ethical Safeguards Reinforce Statutes
Even without statutory language, attorney ethics rules bar outside influence:
– Lawyers must exercise independent judgment and loyalty to clients.
– Confidentiality rules prevent improper information-sharing.
– No fee-sharing with non-lawyers ensures funders cannot ‘buy’ influence.
– The decision to settle rests solely with the client, not third parties.
Together, these rules and statutes guarantee that litigation decisions remain with client and counsel.
5) Market Realities: Why Control Makes No Sense
CLF contracts are relatively small, especially compared to the cost of litigation. They are designed to cover groceries and rent, not discovery budgets or jury consultants. Trying to control a case would be both unlawful and economically irrational.
Because repayment is contingent, funders want efficient and fair resolutions, not drawn-out litigation. Their interests align with consumers and counsel: achieving just outcomes at reasonable speed.
6) Addressing Misconceptions
– Myth: Funders push for bigger settlements.
Fact: They cannot veto settlements. Dragging out cases only increases risk and cost.
– Myth: Funders get privileged information.
Fact: Attorneys control disclosures; privilege remains intact. Access to limited case status updates does not confer control.
– Myth: CLF pressure consumers to reject fair settlements.
Fact: Statutes forbid interference. And because advances are non-recourse, consumers are not personally liable beyond case proceeds.
– Myth: CLF is an assignment of the claim.
Fact: Consumers remain the sole parties in interest. Providers have only a contingent repayment right.
7) How Statutes Work in Practice
States that regulate CLF typically require:
1. Plain-language contracts advising consumers to consult counsel.
2. Cooling-off periods for rescission.
3. Bright-line bans on control over strategy or settlement.
4. No fee-sharing or referral payments.
5. Regulatory oversight through registration or examination.
6. Civil remedies for violations.
This model balances access to financial stability with ironclad protections for litigation independence.
8) The Consumer’s Perspective
CLF does not alter case strategy; it alters life circumstances. Without it, many injured individuals face eviction, repossession, or the inability to pay basic bills. That pressure can lead to ‘forced settlements.’ By covering essentials, CLF allows clients to consider their lawyer’s advice based on legal merits, not immediate financial desperation.
9) Compliance in Contracts
Standard CLF contracts reflect the law:
– Providers have no authority over legal decisions.
– Attorneys owe duties solely to clients.
– Terms granting control are void and unenforceable.
National providers adopt these clauses uniformly, even in states without explicit statutes, creating a strong industry baseline.
10) Enforcement and Oversight
Regulators can discipline providers, void unlawful terms, or impose penalties. Attorneys risk ethics sanctions if they allow third-party interference. Consumers may also have remedies under statute. These enforcement tools make attempted control both illegal and unprofitable.
11) Policy Rationale
Legislatures designed CLF frameworks to achieve two goals:
1. Preserve litigation integrity by keeping decisions between client and counsel.
2. Expand access to justice by giving consumers breathing room while claims proceed.
The explicit statutory bans on control ensure both goals are met.
Conclusion
Consumer legal funding is a support tool for people, not a lever over lawsuits. Statutes across the country make this crystal clear: CLF providers cannot influence litigation strategy, cannot veto settlements, and cannot practice law. The product is non-recourse, small in scale, and tightly regulated.
For consumers, CLF offers stability during difficult times. For the justice system, it preserves the attorney–client relationship and the independence of litigation. The result is access to justice without interference—because control of litigation is not only absent, but also expressly banned by law.
