Does Consumer Legal Funding Put Consumers in Debt?
Public
April 3, 2024
Does Consumer Legal Funding Put Consumers in Debt?
The following article was contributed by Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding (ARC). There has been a lot of discussion if Consumer legal funding is a loan and thereby creates debt for a consumer Consumer legal funding, sometimes called litigation funding or lawsuit funding, provides cash upfront to plaintiffs, to be used for household needs, which are involved in legal proceedings in exchange for a portion of the eventual settlement or judgment. It doesn’t create debt like a loan from a bank or credit card, these distinctions contribute to its classification as a unique financial product rather than a loan or debt.
Non-recourse nature: Unlike loans, where the consumer is personally liable for repayment regardless of the outcome, consumer legal funding is non-recourse. This means that if the plaintiff loses their case, they are not obligated to repay the funding. The repayment is contingent upon the success of the lawsuit.
No monthly payments: In a loan, borrowers usually make monthly payments to repay the principal amount plus interest. With consumer legal funding, there are usually no monthly payments required. Instead, repayment only occurs if and when the case is settled or won, and the repayment is often structured as a lump sum.
Risk sharing: Consumer legal funding providers assume a significant amount of risk by providing funds to plaintiffs who may not ultimately win their case. Unlike lenders who typically assess creditworthiness and require collateral, consumer legal funding companies evaluate the strength of the case and base their decision on the likelihood of success and not the creditworthiness of the consumer.
Not regulated as loans: Consumer legal funding is often subject to different regulations than loans. While loans are typically governed by banking and lending laws, consumer legal funding has its own set of regulations that ensures consumers are protected and the product is offered in a responsible manner.
Some of the other key differences between consumer legal funding and debt from a loan is in how repayment works. With a loan, the consumer borrows money and agrees to repay it with interest, regardless of the outcome of the situation, creating debt. However, with consumer legal funding, repayment is contingent upon the success of the case. If the consumer loses their case, they will not have to repay the funding. But if they win, they will have to pay back the amount funded, with fees that are known upfront. So, therefore consumer legal funding doesn’t create debt. Unlike Consumer legal funding, some loans can put consumers in a cycle of debt. The term cycle of debt refers to a pattern where individuals or households become trapped in a recurring pattern of borrowing money to meet financial obligations, only to find themselves in even greater debt over time. This cycle often involves:
Initial Borrowing: The cycle typically begins with an initial borrowing of money, such as taking out a loan, using a credit card, or obtaining other forms of credit to cover expenses or emergencies.
Accumulation of Interest and Fees: As time passes, the borrower may struggle to make timely payments on their debts, leading to the accumulation of interest charges, late fees, and other penalties.
Financial Strain: The increasing debt burden can put a strain on the borrower’s finances, making it difficult to cover basic living expenses and other financial obligations.
Additional Borrowing: To address their financial difficulties, borrowers may resort to additional borrowing or using high-cost forms of credit, such as payday loans or cash advances, to make ends meet.
Repayment Challenges: The cycle continues as the borrower struggles to keep up with mounting debt payments, leading to further financial stress and the need for more borrowing.
Escalating Debt: Without significant changes in financial habits or circumstances, the debt continues to escalate, with the borrower owing more money than they can realistically repay.
Breaking the cycle of debt often requires proactive steps such as budgeting, reducing expenses, increasing income, seeking financial counseling, and finding ways to pay down debt strategically. It may also involve negotiating with creditors, consolidating debts, or exploring debt relief options such as debt settlement or bankruptcy. Consumers who use Consumer legal funding are never placed in a cycle of debt. Consumer legal funding has many other positives to a consumer besides not placing them in debt.
Immediate Financial Assistance: Consumer legal funding provides plaintiffs with immediate cash to cover living expenses, medical bills, legal fees, and other costs associated with their lawsuit. This can be particularly helpful for individuals facing financial hardship due to their inability to work or other circumstances related to their legal case.
Non-Recourse: Consumer legal funding is non-recourse, meaning that if the plaintiff loses their case, they are not obligated to repay the funding. This reduces the financial risk for the plaintiff, as they only repay the funding if they win their case.
Leveling the Playing Field: Consumer legal funding can help level the playing field in legal disputes by providing plaintiffs with the financial resources to pursue their case effectively. This is particularly beneficial for individuals who are up against well-funded defendants or corporations.
No Upfront Costs: Unlike loans, consumer legal funding does not require upfront payments or monthly repayments. Instead, repayment is structured with a known outcome and amount.
Overall, consumer legal funding can be a valuable resource for plaintiffs in need of financial assistance during legal proceedings without putting them in debt. Eric Schuller
President
Alliance for Responsible Consumer Legal Funding (ARC)
When people talk about third party litigation financing, they often lump everything into one bucket—as if every type of funding that touches the legal system is essentially the same. But that’s a misconception. The world of legal finance is much more varied, and each type serves a distinct role for a distinct audience.
A good way to understand the differences is to step away from the courtroom and into the world of music. Think of Consumer Legal Funding as a rock band, Commercial Litigation Financing as a symphony orchestra, and Attorney Portfolio Financing as a gospel choir.
All three make music—they all provide funding connected to the legal system—but they produce very different sounds, are organized differently, and serve different purposes. Let’s explore these three “musical groups” of legal funding to understand how they work, why they exist, and what separates them.
Consumer Legal Funding: The Rock Band
Immediate, Personal, and Audience-Driven
A rock band connects directly with its fans. The music is raw, emotional, and often tied to the lived experiences of ordinary people. That’s exactly what Consumer Legal Funding does—it provides individuals with direct financial support while they are waiting for their personal injury cases to resolve.
Most people who seek consumer legal funding have been in a car accident, or experienced some other harm caused by negligence. While their cases work their way through the legal system, they still need to pay rent, buy groceries, keep the lights on, and support their families. Consumer Legal Funding steps in to help them cover these day-to-day expenses.
Like a rock band that thrives on the energy of a crowd, Consumer Legal Funding is closely tied to the needs of everyday people. It’s not about abstract legal theories or corporate strategy. It’s about giving real people financial breathing room so they can withstand the pressure from insurers who might otherwise push them to settle for less than they deserve.
Flexibility and Accessibility
Just as a rock band doesn’t require a massive concert hall or multimillion-dollar backing, Consumer Legal Funding is accessible on a small, personal scale. A consumer can request a few hundred or a few thousand dollars to cover immediate needs, and repayment is contingent on the case outcome. If the plaintiff loses, they owe nothing.
This non-recourse structure mirrors the risk of a rock band going on tour—they might make money, or they might not, but the fans are there for the experience. Similarly, Consumer Legal Funding companies take the risk that the case might not succeed, and they may not get their investment back.
Critics and Misconceptions
Rock bands often face criticism for being too loud, too disruptive, or too unconventional compared to “serious” classical music. Consumer Legal Funding gets similar pushback. Critics sometimes argue it encourages frivolous lawsuits or drives up settlement costs. But the reality is the opposite—the funds provided to a consumer doesn’t fund lawsuits; they fund life necessities for individuals already in the legal system.
Consumer Legal Funding’s role is narrow but vital. Like a rock band giving a voice to ordinary people, it empowers individuals who might otherwise be silenced by financial hardship.
Commercial Litigation Financing: The Symphony Orchestra
Complex, Structured, and High-Stakes
Where Consumer Legal Funding is the rock band of the legal funding world, Commercial Litigation Financing is the full symphony orchestra—large, complex, and meticulously coordinated.
Here, the players are not individuals injured in accidents but corporations, investors, and law firms involved in high-value commercial disputes. These cases can involve intellectual property battles, antitrust issues, international contract disputes, or shareholder actions. The stakes often run into the tens or hundreds of millions of dollars.
Like an orchestra, Commercial Litigation Financing is structured and multi-layered. Each section—strings, brass, woodwinds, percussion—must work together under the baton of a conductor. In litigation finance, this “conductor” is the funding company, aligning investors, lawyers, and plaintiffs toward a common goal: seeing the case through to resolution.
Strategic and Long-Term
Orchestras don’t play three-minute songs; they perform long symphonies that require endurance, precision, and careful planning. Similarly, Commercial Litigation Financing is not about immediate cash flow. It’s about supporting a complex legal strategy over years of litigation.
Funds can cover attorney fees, expert witnesses, discovery costs, and even corporate operations while a case drags on. The financing enables companies to pursue claims they might otherwise abandon because of the sheer cost and duration of litigation.
Audience and Impact
The audience for an orchestra is often more formal, more elite, and more willing to pay for a grand performance. Commercial Litigation Financing likewise serves a specialized, high-stakes audience: multinational corporations, hedge funds, and sophisticated investors. The outcomes affect entire industries and markets, not just individual households.
While a rock band might play in bars or stadiums, an orchestra plays in concert halls before an audience expecting refinement. That’s the difference in scale between Consumer Legal Funding and Commercial Litigation Financing.
Attorney Portfolio Financing: The Gospel Choir
Collective Strength and Community
If Consumer Legal Funding is a rock band and Commercial Litigation Financing is a symphony orchestra, then Attorney Portfolio Financing is a gospel choir. It’s powerful, collective, and rooted in the idea of strength in numbers.
Attorney Portfolio Financing provides capital to law firms by pooling together multiple cases—often personal injury or contingency fee cases—into one financing arrangement. Instead of betting on a single case, the funding spreads across a portfolio, much like the voices of a choir blend to create a unified sound.
Stability and Predictability
A gospel choir doesn’t rely on one soloist to carry the performance. If one voice falters, the rest keep singing. Similarly, portfolio financing reduces risk because the outcome of any one case doesn’t determine the success of the financing. The strength lies in the collective performance of many cases.
This allows law firms to take on more clients, expand their practices, and better withstand the financial ups and downs of litigation. For clients, it means their attorneys have the resources to see their cases through rather than being pressured into quick settlements.
Purpose and Spirit
Gospel choirs aren’t just about music—they’re about inspiration, resilience, and community. Attorney Portfolio Financing carries a similar spirit. It’s designed not only to provide financial stability for law firms but also to empower them to serve clients more effectively.
While the audience for a gospel choir is often the community itself, the “audience” for portfolio financing is law firms and, indirectly, the clients who benefit from better-resourced representation.
Comparing the Three Sounds
To appreciate the differences, let’s put the three side by side:
Type of Funding
Musical Analogy
Audience
Scale
Purpose
Consumer Legal Funding
Rock Band
Individuals waiting for case resolution
Small-scale, personal
Helps consumers cover living expenses while awaiting settlement
Commercial Litigation Financing
Symphony Orchestra
Corporations, investors, large law firms
Large-scale, complex
Funds high-stakes commercial disputes over years
Attorney Portfolio Financing
Gospel Choir
Law firms (and indirectly their clients)
Medium-to-large scale
Provides stability by funding multiple cases at once
Why These Distinctions Matter
Understanding these distinctions isn’t just an academic exercise—it has real implications for policy, regulation, and public perception. Too often, critics conflate Consumer Legal Funding with Commercial Litigation Financing or assume Attorney Portfolio Financing operates the same way as individual case advances.
But regulating a rock band as if it were an orchestra—or treating a gospel choir as if it were a solo act—would miss the point entirely. Each type of legal funding has its own purpose, structure, and audience.
Consumer Legal Funding keeps people afloat in times of crisis.
Commercial Litigation Financing enables corporations to fight complex battles on equal footing.
Attorney Portfolio Financing stabilizes law firms and expands access to justice.
All three are part of the broader “music” of legal finance, but they are distinct genres with distinct contributions.
Conclusion: Harmony Through Diversity
Music would be dull if every performance sounded the same. The same is true for legal finance. A rock band, a symphony orchestra, and a gospel choir all create music, but their sounds, audiences, and purposes differ dramatically.
Similarly, Consumer Legal Funding, Commercial Litigation Financing, and Attorney Portfolio Financing are all forms of legal finance, but each plays a unique role. Recognizing these differences is crucial for policymakers, industry professionals, and the public.
When we appreciate the rock band, the orchestra, and the choir for what they are, we begin to see the full richness of the legal finance “soundtrack.” Together, they form a diverse ecosystem that, when balanced correctly, ensures both individuals and institutions can pursue justice without being silenced by financial pressure.
Express Legal Funding announced it has reached its fifth year as a member of the Alliance for Responsible Consumer Legal Funding (ARC), underscoring a commitment to best practices in an often-polarized pre-settlement space. For a company that brands itself around transparent pricing and consumer education, the ARC imprimatur doubles as a marketing and compliance asset—especially as statehouses revisit disclosure, APR caps and contract clarity.
An announcement in PR Newswire positions the milestone within a “rapidly growing” lawsuit-cash-advance market. While the release is light on metrics, the message tracks with the broader U.S. consumer-funding narrative: pressure from insurers and tort-reform groups on one side; advocates and funders emphasizing access to liquidity and non-recourse safety on the other.
For plaintiff firms, vendor due diligence remains a reputational imperative; for consumers, independent accreditation—however voluntary—can serve as a quick proxy for baseline standards when shopping funding offers. The strategic subtext is clear: as more states contemplate rules around discoverability, disclosures and rate structures, firms that can point to consistent adherence to codes like ARC’s may enjoy smoother law-firm relationships and fewer regulatory headwinds.
With regulatory skirmishes likely to continue at the state level, recurring membership signals (ARC or otherwise) will matter more.
Editor's Note: An earlier version of this article stated that Express Legal Funding reached its fifth consecutive year as a member of the Alliance for Responsible Consumer Legal Funding. Express Legal Funding reached its fifth year, but not consecutively. We regret the error.
High Rise Financial has added industry veteran Karyn Cerulli as Regional Vice President of Sales, deepening the Los-Angeles-based funder’s reach into the personal-injury bar. Cerulli spent more than a decade with FindLaw and Thomson Reuters, where she partnered with firms on digital marketing and business-development strategies. In her new role she pivots from lead generation to liquidity, positioning High Rise’s non-recourse advances as a client-care tool for plaintiffs’ firms facing lengthy litigation timelines.
A post on LinkedIn sets out Cerulli’s agenda: hands-on attorney support, a “best rate guarantee,” and white-glove service that places “zero pressure” on case strategy while delivering cash within days. Cerulli frames High Rise as a complement rather than a competitor to existing funders, inviting firms to keep her on standby as a “second option” or safety net when primary partners stall or pricing shifts.
The move comes amid rapid growth for High Rise, which secured a $100 million senior credit facility late last year to expand its pre-settlement portfolio and medical-lien program. The funder touts 24-hour approvals, no credit checks, and repayment only from a successful resolution—features that resonate with Cerulli’s long-time focus on consumer-friendly legal services. With her network of plaintiff-side marketers and case managers, the company hopes to accelerate origination across high-volume auto and premises claims.
Sign Up for LFJ’s Weekly Newsletter & Daily Alerts
Thank you for signing up for the LFJ Newsletter!
Stay informed on the latest news and events taking place in the global legal funding space.
You'll now receive the latest global legal funding news, insights, and analysis straight to your inbox.
Please check your email to confirm your subscription.
By completing this form, you agree to allow LFJ to communicate with you per the terms of our Privacy Policy. Your personal information will never be shared or sold to 3rd parties.
Access Premium Content
LFJ members, please log in below to access premium content.
