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Is Consumer Legal Funding a loan? Why does it matter?

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

The classification of Consumer Legal Funding as a loan is more than mere semantics. Consumer Legal Funding is the purchase of an asset; that being a portion of the proceeds of the consumer’s legal claim. This form of investment allows the consumer to access much needed support in order to obtain the financial assistance they need while their claim is making its way through the system.

You may ask yourself, so why does this matter?

In her publication “Harmonizing Third-Party Litigation Funding Regulations,” Professor Victoria Shannon Sahani clarified why Consumer Legal Funding is not a loan:

  • First, there is no absolute obligation for the funded client to repay the litigation funder. If the client is the claimant, the client must only repay the funder if the client wins the case. If the client is the defendant, the premium payments end as soon as the case settles, and if the defendant loses, the funder will not receive a success fee or bonus.
  • Second, litigation funding is non-recourse, meaning that if the client loses the case, the funder cannot pursue the client’s other assets unrelated to the litigation to gain satisfaction.
  • Third, the funder is taking on more risk than a traditional collateral-based lender; therefore, the funder is seeking a much higher rate of return than a traditional lender. This is not a unique concept. For example, an unsecured credit card typically carries more risk than a secured loan, so regulations tolerate much higher interest rates on unsecured credit cards than allowed even on subprime mortgages, which are backed by collateral. Similarly, as mentioned above, funders structure their agreements to avoid classification as loans in order to avoid the caps that usury laws place on interest rates for mortgages and credit cards.
  • Fourth, distancing funding even further from a loan, funders are taking on even more risk than unsecured credit cards because the credit card agreement is a bilateral transaction, while funding is a multilateral transaction.

Shahani explains that Consumer Legal Funding does not contain any of the characteristics of a loan, as illustrated in the chart below:

CharacteristicsLoanConsumer Legal Funding
Personal repayment obligationYESNO
Monthly or periodic paymentsYESNO
Risk of collection, garnishment, bankruptcy.YESNO

What is interesting to note is that no state where the legislature has carefully examined the product has classified it as a loan. In fact, states have gone so far as to declare that Consumer Legal Funding is unequivocally not a loan. In 2020, Utah passed HB 312 that specifically states that the product does not meet the definition of a loan or credit.

In Indiana for example: A statute was passed regulating the industry which specifically states: “Notwithstanding section 202(i) of this chapter and section 502(6) of this chapter, a CPAP[1] transaction is not a consumer loan.”  The statute further articulates: “This article may not be construed to cause any CPAP transaction that complies with this article to be considered a loan or to be otherwise subject to any other provisions of Indiana law governing loans.”

The Nebraska state legislature has declared: “Nonrecourse civil litigation funding means a transaction in which a civil litigation funding company purchases and a consumer assigns the contingent right to receive an amount of the potential proceeds of the consumer’s legal claim to the civil litigation funding company out of the proceeds of any realized settlement, judgement, award, or verdict the consumer may receive in the legal claim.”

In Vermont: “Consumer litigation funding means a nonrecourse transaction in which a company purchases and a consumer assigns to the company a contingent right to receive an amount of the potential net proceeds of a settlement or judgement obtained from the consumer’s legal claim. “

In other words, Consumer Legal Funding is specifically classified as a purchase, not a loan. And it’s not just the state legislatures that have weighed in on this, the courts have as well.

In 2018, the Georgia Supreme Court affirmed the Georgia Court of Appeals ruling, that the product is not subject to the Industrial Loan Act. The Appeals Court stated: “Unlike loans, the funding agreements do not always require repayment. Any repayment, under the funding agreement is contingent upon the direction and time frame of the Plaintiffs’ personal injury litigation, which may be resolved through a myriad of possible outcomes, such as settlement, dismissal, summary judgment, or trial.”

Even dating back to 2005, when the New York Attorney General’s office came to an agreement with the industry, it stated in its press release: “The cash advances provided by these firms are not considered “loans” under New York State law because there is no absolute obligation by a consumer to repay them.”

So, this leads me back to my opening question: Why does it matter?

Classification matters, because once you mischaracterize the product by calling it a loan, you limit consumers’ availability to access it by subjecting Consumer Legal Funding to state laws that regulate loans. According to MarketWatch, in January of 2021, as many as 74% of Americans are living paycheck to paycheck. When their income stream is interrupted (typically due to an accident), they desperately need some economic assistance to help them through the lengthy and extensive process of filing their legal claim.

So we ask State Legislators, when you are deciding how best to regulate this important financial product, to do what is best for your constituents by providing them access to economic assistance during their time of need, and ensuring that they are fully informed as to the terms and conditions of the transaction, by having their attorney review it with them in order to confirm that it is properly classified as a purchase.

Blanket statements labelling Consumer Legal Funding as loans only serve to hurt those in need of its assistance, especially at a time when they need it.

Eric Schuller
President
Alliance for Responsible Consumer Legal Funding

 

[1] CPAP Civil Proceeding Advance Payment

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Golden Pear Upsizes Corporate Note to $78.7M Amid Growth Plans

By John Freund |

Golden Pear Funding has extended and upsized its investment-grade corporate note to $78.7 million, further bolstering the firm's capacity to serve the expanding litigation finance sector. The New York-based funder, a national leader in both pre-settlement and medical receivables financing, said the proceeds will support working capital and fuel strategic growth initiatives.

A press release from Golden Pear outlines how the capital raise reflects continued investor confidence in the firm’s business model. CEO Gary Amos noted that the infusion is critical as Golden Pear seeks to scale alongside the “rapidly expanding litigation finance market.” CFO Daniel Amsellem added that the new funding aligns with the company’s capital allocation strategy, aimed at optimizing operational efficiency and executing strategic projects.

Brean Capital, LLC acted as the exclusive financial advisor and sole placement agent on the transaction.

Founded in 2008, Golden Pear has funded more than $1.1 billion to over 87,000 clients and remains one of the largest specialty finance companies in the U.S. Its business model spans legal case funding and medical receivables purchasing, with backing from a network of private equity partners that provide institutional support for continued expansion.

Mayfair Legal Launches Wildfire Support Program for Plaintiffs

By John Freund |

Mayfair Legal Funding has unveiled a new initiative aimed at aiding wildfire victims in Los Angeles and Maui by providing pre-settlement advances tailored to individuals pursuing legal claims related to recent wildfire disasters. The program seeks to ease the financial burden on plaintiffs during the lengthy litigation process, allowing them to cover essential living expenses and medical costs without being forced into early or inadequate settlements.

An article in OpenPR reports that Mayfair’s program will provide wildfire-impacted claimants with cash advances while their cases proceed through court or settlement negotiations. The funding is non-recourse, meaning recipients are only obligated to repay the advance if their case is successful. This offering is particularly timely in light of the mounting legal battles related to utility-sparked wildfires in California and the catastrophic 2023 fires in Maui, both of which have left thousands seeking legal recourse and financial recovery.

Mayfair emphasized that this initiative aligns with its mission to ensure access to justice regardless of a claimant’s financial status. “We believe that no one should have to choose between basic survival and pursuing a rightful claim,” said a spokesperson for the funder, noting that the company’s underwriting process is designed for speed and minimal paperwork.

With natural disasters on the rise and litigation timelines stretching longer than ever, targeted pre-settlement funding like this may become an increasingly vital tool for plaintiffs. The wildfire-specific program from Mayfair underscores a growing trend of funders developing specialized products for mass torts and disaster-related litigation—an area likely to see heightened investor and regulatory attention in the years ahead.

New Express Legal Funding Portal and App Give Injury Plaintiffs Faster Access to Lawsuit Cash Advances

By Harry Moran |

The below is a sponsored post from Express Legal Funding.

Express Legal Funding, a leader in the pre-settlement funding industry, has officially launched the Express Legal Funding Portal and mobile app suite—now available on iOS, Android, and web. The innovative platform gives plaintiffs real-time access to their funding application status, document uploads, and direct case communication—all from a secure, user-friendly interface.

Since launch, the platform has already seen over 200 app installs across iOS and Android, reflecting strong early adoption and client demand for greater transparency, speed, and convenience in the legal funding process.

"This is the kind of digital leap our industry needed," said Aaron Winston, Phd, Strategy Director at Express Legal Funding. "With the Express Legal Funding Portal, clients no longer have to wait days for updates or navigate confusing paperwork. Now they can check their status, send documents, and message us—all in one place, and on their own time, anytime 24,7. Ray Bivona, our Operations Manager, did a great job building out the platform."

Meeting the Demand for Speed, Simplicity, and Security

The Express Legal Funding Portal and apps are designed to meet the evolving expectations of legal consumers, as reports indicate the industry has surpassed $1 billion in annual advances nationwide. Key features include:

  • Live Case Status Tracking: Monitor the full legal funding timeline in real time
  • Secure Document Uploads: Send attorney correspondence and case files instantly
  • In-App Messaging: Communicate directly with case managers—no long hold times or email delays
  • Push Notifications: Get instant alerts for updates, requests, and approvals
  • Funding Calculator: Estimate pre-settlement cash eligibility based on case type
  • Bank-Level Encryption: Ensures client privacy and legal compliance at every step

"Clients tell us this is the best communication experience they've had with a legal funding company," said Shawn Hashmi, Chief Executive Officer at Express Legal Funding. "The high number of downloads in such a short time proves there's a real demand for this kind of tool."

Transforming the Legal Funding Experience for Plaintiffs and Attorneys

The Express Legal Funding Portal improves operational efficiency and transparency on both sides of the process:

  • For Plaintiffs: Offers peace of mind and greater control during a financially vulnerable time
  • For Attorneys: Reduces administrative back-and-forth, freeing up time to focus on litigation

About Express Legal Funding

Express Legal Funding is a trusted national provider of non-recourse pre-settlement funding, helping plaintiffs access fast, risk-free financial relief while their lawsuits move through the legal system. Repayment is only required if the client wins or settles their case.

The company has served thousands of injured plaintiffs in cases involving car accidents, slip and falls, product liability, and more.

What's Coming Next

In addition to the current features, the platform aims to expand in the coming months with:

  • Attorney Dashboard: Real-time access for law firms to manage client funding
  • In-App Renewals: Easy follow-up funding requests for returning clients
  • Case Management Integrations: Compatibility with popular personal injury law firm software platforms like Clio, Filevine, and SmartAdvocate