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Litigation Financing is an Investment in Democracy

May 19, 2022

Litigation Financing is an Investment in Democracy

The following is a contributed piece from Rory Donadio, CEO of www.tribecalawsuitloans.com There are many ways to look at what those of us in litigation funding do. Is it a pre-settlement cash advance or a non-recourse loan? Is it truly lending, or is it an investment? But far more important than what we call our work, is what we actually do. According to a September 2021 Bloomberg Law Litigation Finance Survey, 88% of the responding attorneys believe that litigation finance enables better access to justice. Without justice for all, democracy fails. So, I submit that litigation financing is an investment in democracy. Since the inception of this industry, back when it was ripe for opportunity and unregulated like the wild west, I have been excited and driven to help real people in their search for justice. We help level the playing field between large, powerful companies and financially damaged individuals who have been harmed. A pre-settlement loan robs the insurance company of the plaintiff’s economic desperation they are so eager to weaponize as they strive to protect their clients from accountability. With the litigation funding we provide, ordinary Americans can do the extraordinary — hold the most powerful entities in our society accountable for their actions. What could be more fundamental to democracy than this? We are investing in democracy. Believe it, and never let it go.

Advice to Others in Litigation Financing

When Tribeca advises newcomers to the industry, I tell them to diversify their portfolios to invest in a wide range of cases. I encourage them to prioritize relationships with everyone — with clients, lawyers, the mailman, the person checking your groceries at your local store, that stranger who looks like they need a friend, and of course, other funders and brokers. Most importantly, I advise them never to lose sight of the genuine good you can do with litigation funding. Never forget that we are helping real people in need — that we are investing in democracy. Let me share a story of one of our clients, who I am now proud to call my friend. Derrick Hamilton’s case is one — of many — that clarified how litigation financing is indeed investing in democracy.

When Democracy Falters

In 2011, Derrick Hamilton was released from prison after serving 21 years for a murder he did not commit. He was fully exonerated in 2015. In this country, we say it is better to let ten guilty men go free rather than convict a single innocent man. Yet our judicial system snatched more than two decades of this man’s life. Our legal system failed him. As bad as his wrongful imprisonment was, the way he was treated after his release was almost worse. He was released from prison into poverty with no support structure. And when he sued the state for compensation for the wrongful imprisonment — you know what happened next — the state’s attorneys stalled. Despite knowing the state wrongfully locked this man away from his family, his friends, and his life, knowing the state owed him compensation for this vast injustice, the attorneys representing New York and Connecticut still dragged out his compensation negotiations for six years. Think about that for a moment. There were no complex issues to analyze or painstaking research required. Nevertheless, more than two decades of this man’s life were stolen — a fact recognized by all sides. They delayed his compensation — for six entire years — because they could. They hoped that his financial straits would force him to accept far less money than he was owed, just to make the pain stop. It nearly worked. Fortunately, we were able to help fund his wrongful incarceration lawsuit. I gained so much more than a business deal from the experience.

All Money is Alike

If you are desperate and cannot scrape the funds together to keep a roof over your family’s heads, or provide necessary medical care, then every dollar is precious. But when you have enough money to cover all your needs and wants, then every dollar is just like any other. Forever chasing money simply adds up to bigger stacks of paper. But when we invest in people, we create opportunities to flourish. Unfortunately, sometimes these opportunities are squandered. But through passion, hard work, and faith in God, some people turn their chance to thrive into a way to lift up those around them. When this happens, you know your investment has paid rich dividends.

Investing in People Reaps Enormous Dividends

Supporting cases like Derrick’s crystallized my sense of the work we do. I recognized that, in a small way, I was investing in him and our democracy by helping him continue his fight for justice. I initially helped one man. Then, with the pre-settlement funding we provided, Derrick opened a business of his own, and invested in someone else’s restaurant. He netted the money he needed to hire other exonorees to work with him, pursuing justice for others still behind bars. He did this all while continuing to fight for the compensation he deserved. When I look at all Derrick accomplished with the lawsuit loan I provided — just a cash advance on the money he was owed — I am both humbled and in awe. I helped Derrick Hamilton, but he, in turn, helped his family start a business and another company grow. He has employed other men in his very same circumstance, others unjustly imprisoned, and together, they help even more people. Every dollar is a duplicate of another, but a single life that is improved reaches far and wide, bettering the lives of others. Whether someone we help plants a garden, raises a child, or creates opportunities for others our society has left behind, it is a beautiful thing. And each of these lives is singular, unrepeatable, and utterly unique. Calculating the way one life can enhance so many others, strengthening our society and making our democracy work just a little bit better is much messier than standard accounting, and more challenging. The math is harder, but it’s so much more rewarding!

Building a Team and Moving Forward

More advice for others starting out in litigation financing — surround yourself with quality people who share your vision. After 28 years in the industry, I now have an incredible staff that does just that. They are open-minded, caring, and hardworking. They dig into the ways legal funding invests in people and strengthens our democracy. They never shy away from the messy accounting involved. What’s different for me today, is that I am not afraid of admitting that I have made a mistake, I can own it, and I can learn from it. When I was one of the litigation financing industry’s pioneers back in the 90s, there were no guardrails or guidelines. In many ways, we were inventing the industry as we worked. Together we helped a lot of people, but I also made plenty of mistakes. I lost deals and made loans I should have walked away from, but these mistakes helped to form the man and the investor I have become today. My faith has allowed me the comfort of knowing there is enough for my storehouse. I don’t have to have every deal. I credit self-reflection, passion, work ethic, and my relationship with God as the secrets to my success. In addition, the willingness to make mistakes and to learn from them — to grow — is as essential to success in this field as in any other. Each case is so different from the next; there’s plenty of trial and error involved. So when mistakes happen, the truth is better revealed because you see the problem more clearly. The goal should not be to avoid failure but to learn from it and move on. My mantra has become, “Yesterday’s denials are today’s approvals.” I find my passion for litigation financing redoubled. I feel honored to be in a position to invest in our democracy’s justice system.

Where is the Litigation Financing Industry Headed?

As long as we have positive regulation in the market, the litigation financing industry will continue to grow. We must be proactive with legislation to keep companies honest and keep the industry available to those who need it. I see legal funding as a genuinely noble business, where we use our money to help vulnerable people in distress meet their needs and secure the compensation they deserve. Sadly, some see nothing but an opportunity to victimize these people further and take quick profits with no regard to the damage they inflict. Our industry needs sensible regulations that do the following:
  • Rein in predatory lending practices
  • Allow consumers to get the help they need
  • Protect the litigation funder’s investment in the case
Currently, there are bills in Kentucky, North Carolina, New Jersey, Colorado, and New York that we are watching closely. At this time, most appear to be positive legislation that can benefit our industry and our clients. Too often, legislators don’t understand our industry, or they paint the good and bad actors with the same brush, so it’s vital to be proactive as legislation is written and debated. Litigation financing can serve a diversity of clients and needs. Sometimes, it helps individuals pay their rent while settlement negotiations drag on. Other times, it can provide a litigator with the funds they need to hire an expert witness or get an expensive analysis completed that can make their case. It can also be used for operating capital for commercial entities during litigation to cover their costs. Get creative in the way you look at legal funding, and you’ll always find people who will benefit from your support. I am the CEO of Tribeca Lawsuit Loans. We fund a wide diversity of personal injury and mass tort litigation. The cases I am closely watching in 2022 include: Lastly, wrongful imprisonment cases will forever be near and dear to my heart. Accordingly, I’ll be fascinated to see how the class action lawsuit against Hertz — for its disgraceful practice of falsely accusing customers of rental vehicle theft—shakes out. The author of this article is Rory Donadio. Rory can be reached by email: rory.donadio@tribecacapllc.com  
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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.

Consumer

Let’s Get the Definition Right: Litigation Financing is Not Consumer Legal Funding

By Eric Schuller |

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

Across the country, in both state capitols and Washington, D.C., policymakers and courts are giving increasing attention to the question of “litigation financing” and whether disclosure requirements should apply. At the heart of this debate is a push for transparency, who is funding lawsuits, what contracts exist, and what parties are behind those agreements.

While the intent is understandable, the challenge lies in the lack of a consistent and precise definition of what “litigation financing” actually is. Too often, broad definitions sweep in products and services that were never intended to fall under that category, most notably Consumer Legal Funding. This misclassification has the potential to cause confusion in the law and, more importantly, harm consumers who rely on these funds to stay afloat financially while pursuing justice through the legal system.

As Aristotle observed, “The beginning of wisdom is the definition of terms.” Without careful definitions, good policy becomes impossible.

The Distinction Between Litigation Financing and Consumer Legal Funding

The difference between litigation financing and Consumer Legal Funding is both simple and significant.

Litigation financing, sometimes referred to as third-party litigation funding (TPLF), typically involves an outside party providing monies to attorneys or to plaintiffs’ firms to pay for the costs of bringing or defending lawsuits. These funds are used to pay legal fees, expert witnesses, discovery expenses, and other litigation-related costs. The funders, in turn, often seek a portion of the litigation’s proceeds if the case is successful. In short, this type of financing directly supports the litigation itself.

Consumer Legal Funding, on the other hand, serves an entirely different purpose. In these transactions, monies are provided directly to consumers, not attorneys, for personal use while their legal claim is pending. These funds are not used to pay legal fees or case expenses. Instead, consumers typically use them for necessities such as rent, mortgage payments, groceries, utilities, childcare, or car payments. Funding companies are not influencing the litigation but rather ensuring that individuals have the financial stability to see their case through to its conclusion without being forced into a premature settlement simply because they cannot afford to wait.

This is why treating Consumer Legal Funding as though it were litigation financing is both inaccurate and potentially harmful.

Legislative and Judicial Recognition of the Difference

Several states have already recognized and codified this critical distinction. States including Arizona, Colorado, Louisiana, and Kansas have examined disclosure requirements for litigation financing and have made it clear that Consumer Legal Funding is not subject to those laws. Their statutes expressly define litigation financing in a way that excludes consumer-focused products.

Courts have also weighed in. In Arizona, for example, the state’s rules of civil procedure expressly carve out Consumer Legal Funding, recognizing that these transactions are unrelated to litigation financing and should not be treated as such. Likewise, when the Texas Supreme Court considered proposed rules surrounding litigation financing, the Court ultimately declined to proceed. While no new rule was adopted, the process made clear that Consumer Legal Funding was not intended to be part of the conversation.

These examples demonstrate that policymakers and jurists, when carefully considering the issue, have consistently drawn a line between products that finance lawsuits and those that help consumers meet basic living expenses.

Why the Distinction Matters

The consequences of failing to make this distinction are not abstract, they are very real for consumers. If disclosure statutes or procedural rules are written too broadly, they risk sweeping in Consumer Legal Funding.

Disclosure requirements are aimed at uncovering potential conflicts of interest, undue influence over litigation strategy, or foreign investment in lawsuits. None of these concerns are relevant to Consumer Legal Funding, which provides personal financial support and, by statute in many states, explicitly forbids funders from controlling litigation decisions.

As Albert Einstein noted, “If you can’t explain it simply, you don’t understand it well enough.” When the difference between litigation financing and Consumer Legal Funding is explained simply, the distinction becomes obvious. One finances lawsuits, the other helps consumers survive.

A Clear Request to Policymakers

For these reasons, we respectfully urge legislators and courts, when drafting legislation or procedural rules regarding “litigation financing,” to clearly define the scope of what is being regulated. If the issue is the funding of litigation, then the measures should address the financing of litigation itself, not the consumer who is simply trying to pay everyday bills and keep a roof over their head while awaiting the resolution of a legal claim.

Clarity in definitions is not a minor issue; it is essential to ensure that the right problems are addressed with the right solutions. Broad, vague definitions risk collateral damage, undermining access to justice and harming the very individuals the legal system is meant to protect. By contrast, carefully tailored definitions ensure transparency in litigation financing while preserving critical financial tools for consumers.

Finally

The debate around litigation financing disclosure is an important one, but it must be approached with precision. Litigation financing and Consumer Legal Funding are two fundamentally different products that serve very different purposes. One finances lawsuits, the other helps individuals survive while waiting for justice.

It is important to begin with a clear definition. As Mark Twain wisely noted, “The difference between the almost right word and the right word is really a large matter, ’tis the difference between the lightning bug and the lightning.” If legislators and courts wish to regulate litigation financing, they must do so with precision, ensuring clarity in the law while also preserving the essential role that Consumer Legal Funding plays in supporting individuals and families during some of the most difficult periods of their lives.