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Inflation, Recession, and Consumer Legal Funding

April 21, 2022

Inflation, Recession, and Consumer Legal Funding

More Americans than ever are living paycheck to paycheck. With inflation rising and a recession right around the corner—financial pressures on the average family are increasing. And lawsuits aren’t going anywhere, which is why Consumer Legal Funding is a vital and necessary option for average families seeking justice in a legal setting. Yet regulation threatens the availability and effectiveness of Consumer Legal Funding—with the potential to curtail justice for those of modest financial means. What Exactly is Consumer Legal Funding? Consumer Legal Funding is one of two common types of third-party legal funding. While Commercial Litigation Finance focuses on big-ticket commercial claims like insolvencies, IP, antitrust cases, etc.—Consumer Legal Funding exists to advance smaller cases impacting average individuals. Consumer Legal Funding cases may include personal injury, medical malpractice, contesting invoices, and other torts (cases where plaintiffs are trying to right a wrong done to them—often by a larger entity). Like Commercial Legal Funding, Consumer Legal Funding is offered on a non-recourse basis. This means:
  • Collateral is not required to secure funding
  • Money deployed is not paid back unless the case is successful
  • Funders are taking on most or all of the financial risk
Once deployed, funds from Consumer Legal Funding, also called Pre-Settlement Advances, can be used to cover non-legal expenses like rent or mortgage payments, medical bills, or groceries. This is of particular value to individuals who have been injured and are unable to work. At its core, third-party litigation funding is focused on increasing access to justice. In order to accomplish this goal, funders must make a profit for their investors. With that in mind, the higher potential for large awards makes Commercial Legal Funding more attractive to funders. This leaves Consumer Legal Funding struggling for mainstream acceptance and a wider client base. How likely is it that Consumer Legal Funding will grow and flourish due to financial stressors like COVID, an impending recession, and rampant inflation? The answer may depend on what happens regarding proposed increases in regulation across many jurisdictions. Do Americans Really Need Consumer Legal Funding? When we look at the statistics, it’s clear that there’s a need for third-party funding entities that focus on individuals and families. Some measures show economic recovery post-COVID. Unemployment numbers are falling, while the GDP is rising. At the same time, inflation has reached a staggering 8.5%, leaving nearly a third of adults in the US using credit cards and even loans to make ends meet between paychecks. In several states, more than half of adults have difficulty meeting monthly expenses due to loss of income. These include:
  • New York
  • Florida
  • Mississippi (with a staggering 70+%)
  • Nevada
  • Arkansas
  • Oklahoma
  • New Mexico
  • Louisiana
  • Alabama
  • New Jersey
  • Hawaii
  • West Virginia
  • California
  • Texas
  • South Carolina
Families are increasingly facing food insecurity and falling behind on rent or mortgage payments—which in turn can lead to homelessness. Additionally, about 2/3 of Americans do not have enough money set aside to cover an unexpected expense of $500. A necessary car repair, emergency room visit, or home appliance failure can set a family or individual back months. These circumstances can take a toll on health as well—with more than 80% of those with financial stress experiencing clinical anxiety. Over half of those dealing with chronic financial worry suffer from depression. When an emergency arises through no fault of a plaintiff, seeking legal recourse may be the only way to avoid destitution. The statistics on personal injuries in the US are sobering to say the least.
  • 31 million Americans are injured and require medical treatment annually.
  • Of those, 2 million require a hospital stay.
  • Truck accidents alone account for 5,000 deaths and 60,000 injuries annually.
  • Medical malpractice is involved in nearly 100,000 deaths a year.
But as legal costs rise and the timing of court cases remains unpredictable—not everyone has access to the legal remedies they seek. That’s why Consumer Legal Funding is so important. It’s also why the industry shouldn’t be watered down by unnecessary regulations. Who is Pushing for Increased Regulation of Consumer Legal Funding? As one might expect, the insurance industry has been the most vocal about regulating Consumer and Commercial types of Litigation Finance. There’s a particular focus on Consumer Legal Finance—perhaps in part because a wronged or injured individual may appear more sympathetic to juries or judges. In practice, Consumer Legal Funding leads to more meritorious cases being filed, with more and larger awards that insurers must then pay. While insurers can then offset these payouts by charging higher premiums, this can still impact the insurer’s bottom line as policyholders balk at rate increases. What States are Already Passing Increased CLF Regulations? Interestingly, the states listed above as those where citizens are financially struggling the most have significant overlap with those states that have already passed regulations controlling Consumer Legal Funding. These include:
  • Tennessee
  • Arkansas
  • Nevada
  • West Virginia
We see that in many cases, states with residents hit hardest by financial woes are also those imposing restrictions on the use of CLF. West Virginia and Arkansas, for example, have 18% and 17% rate caps, respectively. West Virginia ranks 6th nationally in terms of states with the highest poverty rate, just behind Arkansas at number 5. As this dichotomy obviously harms average Americans, we have to wonder—who exactly are such regulations designed to help? When posed with a question like this, we like to “follow the money.” Who is lobbying for such onerous regulations? The most prominent and powerful organization behind the push for CLF regulation is the U.S. Chamber of Commerce. The Chamber has been issuing a full court press against the Consumer Legal Funding industry (and to a somewhat lesser extent, the Commercial Litigation Finance industry) for years now, at both the state and federal level. And the reason the U.S. Chamber is so adamantly opposed to litigation funding? Two words: Big Insurance. Insurance companies are some of the lead backers of the Chamber of Commerce, and Big Insurance pays a hefty price when individuals have the means to bring cases to completion, and see larger payouts as a result. Insurance companies are incentivized to encourage swift endings to legal claims, where plaintiffs accept lowball offers in return for dropping their case. That is much less likely to happen if the plaintiff has access to Consumer Legal Funding. Remember, this funding is non-recourse, and can be spent on anything the plaintiff desires—rent, food, gas money, Christmas presents, etc. Less impecunious plaintiffs are less likely to settle for lowball offers, and that puts Big Insurance in a great big bind. With some wins under its belt in the aforementioned states, the Chamber is likely to continue its push for industry regulation for the foreseeable future. This has prompted the industry to come to the table on what it deems ‘common sense regulation.’ The Alliance for Responsible Consumer Legal Funding (ARC) – one of two industry trade groups – supports regulations that make CLF safer and easier for consumers to understand. Rather than focusing on fee caps or disclosure minutia, ARC is focused on industry best practices and on clearly spelling out the rights and obligations of those who use Consumer Legal Funding. This includes:
  • Disallowing referral fees, commission, or other adjacent payments such as experts or industry professionals giving testimony.
  • Prohibiting funders advertising in ways determined to be misleading or outright false.
  • Outlining Right of Recission provisions.
  • Ensuring that all fees and costs be reflected in written contracts, including recovery ownership of clients and funders.
  • Precluding third-party funders from decision making with regard to settlements or case strategy.
  • Requiring that funds be used for household needs rather than legal spending.
  • Including funders among those covered by attorney-client confidentiality.
  • Disallowing lawyers from seeking or having a financial interest in funding provided to clients by third-parties.
  • Necessitating attorneys be informed of funding contracts, and for lawyers to affirm that they were informed.
Several states have adopted ARC-approved legislation that increases protections for those who use Consumer Legal Funding.
  • Ohio
  • Nebraska
  • Main
  • Vermont
  • Oklahoma
These common-sense provisions are designed to improve transparency and enable clients to make informed decisions about whether or not to accept third-party funding as their case progresses. As Eric Schuller, President of ARC, noted: “Having a clear statute in place lets everyone know what they can and cannot do, and thereby removes any ambiguities that are associated with the product and industry.” Schuller also added, “To our knowledge, in the states that have passed reasonable regulations on the industry, there has not been a single complaint or issue since the statute has been in place.” Looking Ahead An academic study of CLF funder LawCash delivered some vital findings. First, the study found that the funder declined to fund roughly half the cases it was approached with. Defaults on awards or settlements cost the funder about 12% of its due revenue. Even profitable cases fell short of expectations—stemming from both client defaults and alternate arrangements made with clients. The study did not confirm or disprove an overall societal benefit to third-party legal funding. It did demonstrate that increased transparency and simplifying funding contracts carry benefits to consumers, as does regulation requiring lawyers to be more proactive in protecting clients. Ultimately, Consumer Legal Funding is a necessary, even essential part of leveling the playing field of our legal system. Regulation is increasingly becoming a tool leveraged by insurers to limit the amount of recourse available to those who have been injured, cheated, or otherwise wronged by larger entities. Let’s hope that more moderate minds prevail, and that CLF continues to ramp up consumer protections, while advancing access to justice.
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Consumer

Consumer Legal Funding Is a Lifeline for Americans Living Paycheck to Paycheck

By Eric Schuller |

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

In today’s economy, far too many Americans are walking a financial tightrope. New data from the Bank of America Institute shows that 24 percent of U.S. households now spend more than 95 percent of their income on basic necessities such as rent, groceries, utilities and transportation. That number jumps to 29 percent among lower income households.

Even more surprising, this strain is not limited to those on the lower end of the income ladder. A recent report from Fortune found that 41 percent of workers earning between $300,000 and $500,000, and 40 percent of those earning more than $500,000, say they too are living paycheck to paycheck. Lifestyle costs, debt and high inflation have eroded financial resilience even at the upper end of the income scale.

When an unexpected injury occurs, these households do not simply experience inconvenience. They experience crisis. Income stops or drops. Medical bills rise. Transportation becomes a barrier. Childcare becomes more complicated. Daily life becomes harder and more expensive, just as a legal claim begins the long march through the justice system.

This is the reality facing millions of Americans. It is also why Consumer Legal Funding exists.

The Delay Between Injury and Justice Creates Hardship

After an accident, a consumer who has a valid legal claim. But that claim will take time to resolve. Insurance negotiations, medical assessments and legal reviews do not operate on the timeline of rent due on the first of the month. Consumers cannot tell the electric company to wait until their settlement arrives. They cannot tell the landlord that the case is moving slowly. Yet all of those bills continue to accumulate.

For people who already have no financial cushion, even a short interruption in income can be catastrophic. Families fall behind on rent. Utilities get disconnected. Cars fall into repossession. Groceries become unaffordable.

These pressures far too often push consumers into accepting low settlement offers simply to survive. That is not justice. That is coercion.

Consumer Legal Funding Helps Consumers Survive the Wait

Consumer Legal Funding provides consumers with access to a portion of the future proceeds of their legal claim. Those funds help pay for essential daily expenses, such as:

• Rent and utilities
• Groceries and basic household needs
• Car payments and repairs
• Childcare and family necessities
• Transportation to medical appointments

This support is not used to pay attorney fees or litigation expenses. It is used to keep food on the table and a roof over a family’s head. It is, quite literally, the difference between stability and crisis while consumers await a fair resolution.

Equally important, Consumer Legal Funding is non-recourse. If the consumer does not win or settle their case, they owe nothing. No debt is created. No financial penalty follows them. The risk is on the funding company, not the consumer.

In a financial landscape where payday loans, credit cards and title loans can trap people in cycles of debt, Consumer Legal Funding offers a safer alternative that respects their long term financial well being.

Leveling the Playing Field

Consumer Legal Funding gives consumers the ability to withstand delay tactics. It gives them the time they need for their attorney to negotiate properly. It allows the civil justice system to work on the merits of the case, not the desperation of the injured person.

In an economy where both low income and high-income earners are struggling to stay afloat, tools that protect fairness in the justice system have never been more important.

A Necessary Safety Net for a Fragile Economy

The numbers paint a clear picture. Whether someone earns $40,000 or $400,000, far too many Americans are living without a financial buffer. A single injury can create a domino effect that jeopardizes a family’s housing, transportation, health and financial future.

Consumer Legal Funding does not solve every challenge. But it solves one critical one: it keeps consumers stable during the long wait for justice. It prevents them from being forced into unfair settlements. And it protects them from predatory financial alternatives that create long term harm.

In short, it helps Americans in their moment of need.

Funding Lives, Not Litigation

Consumer Legal Funding exists for one purpose: to help people survive while their legal claim makes its way through the system. It allows injured consumers to focus on recovery, not crisis. It restores balance against powerful insurance companies. And it ensures fairness is not compromised because someone cannot afford to wait for what they are rightfully owed.

Consumer Legal Funding is about Funding Lives, Not Litigation. And in an economy where far too many Americans are living paycheck to paycheck, that mission has never been more essential.

Consumer

Consumer Legal Funding: A Quiet Force Driving Innovation and Economic Welfare

By Eric Schuller |


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

This year’s Nobel Prize in Economics was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their groundbreaking work on how innovation fuels economic growth and human welfare. Their research, centered on endogenous growth and creative destruction, shows that societies advance when new ideas challenge old systems, replacing inefficiency with opportunity.

While their theories are often discussed in the context of technology or industrial progress, they also apply to financial and social innovations that empower people. One of the most quietly transformative examples is Consumer Legal Funding, a financial service that provides individuals with non-recourse funds while their legal claims are pending.

Viewed through the lens of these Nobel-winning theories, Consumer Legal Funding is far more than a niche product. It is an economic innovation that expands access, promotes fairness, and strengthens the very mechanisms that drive growth and human welfare.

1. Expanding Access to Justice: Empowering Consumers and Communities

Access to justice is both a moral and an economic imperative. When ordinary people cannot afford to pursue their legal rights because they cannot provide for their family, justice becomes a privilege for the wealthy, and the rule of law erodes. Consumer Legal Funding addresses this inequity directly by providing individuals with the funds they need to meet essential household expenses, rent, mortgage, groceries, utilities, childcare, while their cases make their way through the legal system.

Because these funds are non-recourse, consumers owe nothing if they do not win their case. That makes Consumer Legal Funding uniquely empowering: it provides stability and breathing room at the moment people need it most. In economic terms, this keeps families solvent, prevents forced settlements driven by financial desperation, and allows cases to be resolved based on fairness rather than necessity.

This democratization of access produces tangible economic benefits. Families stay in their homes, local businesses receive payments, and workers avoid the financial collapse that often accompanies serious injury or wrongful termination. In this way, Consumer Legal Funding strengthens both household balance sheets and community well-being, a microeconomic engine of stability and resilience.

2. Protecting Innovation and Small Business Resilience

The Nobel laureates emphasized that innovation flourishes when barriers to participation are lowered. The same principle applies to individuals and small businesses facing powerful opponents in legal disputes. Whether it is a local contractor owed payment, a delivery driver injured in an accident, or an inventor defending intellectual property, the ability to pursue justice can determine whether innovation thrives or collapses.

Consumer Legal Funding helps level this playing field. It gives consumers and small enterprises the financial capacity to sustain legitimate claims without surrendering early under financial pressure. By doing so, it safeguards the principles of accountability and fair dealing that encourage entrepreneurship and innovation.

Every successful resolution supported by Consumer Legal Funding reinforces market integrity: contracts are honored, negligence is deterred, and honest competition is rewarded. This is how progress occurs, when individuals and innovators have the means to defend their rights and contribute fully to economic life.

3. Fueling Creative Destruction: Redefining How Justice Is Financed

In economic terms, Consumer Legal Funding is itself an innovation that embodies creative destruction. For generations, access to justice was limited by the rigid structure of the legal system: lawyers and clients bore the full financial risk, and those without resources were often shut out entirely.

Consumer Legal Funding disrupts that outdated model. It introduces a private-market solution that operates independently of banks, insurers, or government assistance. By offering a new way for individuals to access funds tied to the potential outcome of their legal claim, it redefines the economics of fairness.

This shift mirrors other historic transformations, just as e-commerce reshaped retail or fintech expanded banking access, Consumer Legal Funding modernizes the intersection of law and finance. It replaces exclusivity with inclusion, dependency with empowerment, and uncertainty with choice. It is a vivid example of innovation that serves people first, not institutions.

4. Creating a New Financial Ecosystem: From Survival Tool to Economic Contributor

What began as a consumer support product has grown into a significant contributor to the broader economy. The Consumer Legal Funding industry now represents a direct economic driver, supporting thousands of jobs in finance, compliance, technology, and law.

“The Nobel laureates’ research ultimately centers on a profound idea: that human welfare grows when barriers to progress are removed and individuals are empowered to act. Consumer Legal Funding embodies that principle.”

Each transaction recirculates funds into the economy, paying landlords, medical providers, car repair shops, and countless other local businesses. In this way, Consumer Legal Funding acts as a stabilizer, smoothing the financial turbulence that can follow accidents, workplace injuries, or prolonged litigation.

Economists recognize that liquidity and timing matter. By bridging the gap between injury and recovery, between claim and resolution, Consumer Legal Funding enhances financial resilience and supports sustained consumer spending. This flow of capital at the household level contributes to macroeconomic stability and growth, precisely the kind of incremental innovation that Mokyr and Aghion identified as critical to human welfare.

5. Driving Institutional and Regulatory Innovation

Innovation does not occur in isolation; it prompts institutions to evolve. The rapid growth of Consumer Legal Funding has led policymakers, courts, and regulators to modernize legal and financial frameworks to reflect this new reality.

In states such as Utah, Georgia, Maine, Missouri, Ohio, Vermont and now California, legislatures have enacted laws that specifically recognize and regulate Consumer Legal Funding, ensuring transparency and consumer protection while preserving access. These frameworks establish clear rules, define the product as non-recourse, and distinguish it from loans or traditional litigation financing.

This legal clarity promotes responsible growth, protects consumers, and reinforces trust in the marketplace. It also represents exactly what Aghion and Howitt described: institutional adaptation as a driver of sustained innovation. As more jurisdictions follow suit, Consumer Legal Funding continues to model how private innovation and public policy can evolve together to serve the public good.

6. Consumer Legal Funding and the Economics of Human Welfare

The Nobel laureates’ research ultimately centers on a profound idea: that human welfare grows when barriers to progress are removed and individuals are empowered to act. Consumer Legal Funding embodies that principle.

By providing access to financial stability during legal uncertainty, it transforms moments of crisis into pathways toward justice and recovery. It strengthens families, reduces strain on public assistance systems, and promotes confidence in the fairness of the civil justice process.

At a macro level, the ripple effects are substantial. More equitable settlements mean greater accountability. Greater accountability deters harmful behavior. And when wrongdoing is reduced, the economy becomes more efficient and trustworthy — exactly the conditions required for sustained, inclusive growth.

7. A Call to Recognize Consumer Legal Funding as True Economic Innovation

Innovation is not defined solely by technology or machinery; it is measured by ideas that reshape systems and improve lives. Consumer Legal Funding achieves both. It is a financial innovation that serves social good, an economic tool that empowers individuals, and a policy model that encourages modern regulatory thinking.

The economists honored by this year’s Nobel Prize remind us that progress is built on the courage to rethink how systems work, and for whom they work. By that measure, Consumer Legal Funding deserves recognition not as a fringe practice, but as a quiet force of modern progress: Funding Lives, Not Litigation.

Announcements Consumer

The Alliance for Responsible Consumer Legal Funding Applauds Governor Newsom for Signing AB 931

By John Freund |

The Alliance for Responsible Consumer Legal Funding Applauds Governor Newsom for Signing AB 931, the California Consumer Legal Funding Act

The Alliance for Responsible Consumer Legal Funding (ARC) expressed its deep appreciation to Governor Gavin Newsom for signing Assembly Bill 931 -- The California Consumer Legal Funding Act -- into law. Authored by Assemblymember Ash Kalra (D–San Jose, 25th District), this landmark legislation establishes thoughtful and comprehensive regulation of Consumer Legal Funding in California—ensuring consumer protection, transparency, and access to financial stability while legal claims move through the judicial process.

The law, which takes effect January 1, 2026, provides consumers with much-needed financial support during the often lengthy resolution of their legal claims, helping them cover essential living expenses such as rent, mortgage payments, and utilities.

“This legislation represents a major step forward for California consumers,” said Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding. “AB 931 strikes the right balance between protecting consumers and preserving access to a financial product that helps individuals stay afloat while they await justice. Consumer Legal Funding truly is about funding lives, not litigation.”
Key Consumer Protections Under AB 931

The California Consumer Legal Funding Act includes robust safeguards that prohibit funding companies from engaging in improper practices and mandate full transparency for consumers.

The Act Prohibits Consumer Legal Funding Companies from:

• Offering or colluding to provide funding as an inducement for a consumer to terminate their attorney and hire another.
• Colluding with or assisting an attorney in bringing fabricated or bad-faith claims.
• Paying or offering referral fees, commissions, or other forms of compensation to attorneys or law firms for consumer referrals.
• Accepting referral fees or other compensation from attorneys or law firms.
• Exercising any control or influence over the conduct or resolution of a legal claim.
• Referring consumers to specific attorneys or law firms (except via a bar association referral service).

The Act Requires Consumer Legal Funding Companies to:

• Provide clear, written contracts stating:
• The amount of funds provided to the consumer.
• A full itemization of any one-time charges.
• The maximum total amount remaining, including all fees and charges.
• A clear explanation of how and when charges accrue.
• A payment schedule showing all amounts due every 180 days, ensuring consumers understand their maximum financial obligation from the outset.
• Offer consumers a five-business-day right to cancel without penalty.
• Maintain no role in deciding whether, when, or for how much a legal claim is settled.

With AB 931, California joins a growing list of states that have enacted clear and fair regulation recognizing Consumer Legal Funding as a non-recourse, consumer-centered financial service—distinct from litigation financing and designed to help individuals meet their household needs while pursuing justice.

“We commend Assemblymember Kalra for his leadership and Governor Newsom for signing this important legislation,” said Schuller. “This act ensures that Californians who need temporary financial relief during their legal journey can do so safely, transparently, and responsibly.”

About the Alliance for Responsible Consumer Legal Funding (ARC)

The Alliance for Responsible Consumer Legal Funding (ARC) is a national association representing companies that provide Consumer Legal Funding, non-recourse financial assistance that helps consumers meet essential expenses while awaiting the resolution of a legal claim. ARC advocates for fair regulation, transparency, and consumer choice across the United States.