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What Happens to Consumers When Consumer Legal Funding Disappears

By Eric Schuller |
January 20, 2026

What Happens to Consumers When Consumer Legal Funding Disappears

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

The Real-World Consequences of Over-Regulation and Misclassification

State lawmakers across the country are increasingly focused on how to regulate third-party financial activity connected to litigation. That attention is appropriate and necessary. However, when Consumer Legal Funding (CLF) is misclassified as a loan, conflicted with commercial litigation finance, or subjected to regulatory structures designed for fundamentally different financial products, the consequences fall not on providers, but on consumers who need it the most.

Consumer Legal Funding, Funding Lives, Not Litigation, exists to help individuals with pending legal claims meet basic household needs while their cases move through the legal system. These consumers are often recovering from serious injuries, unable to work, and facing mounting financial pressure. When CLF disappears due to over-regulation or misclassification, those consumers do not suddenly become financially secure. Instead, they are pushed into worse, more dangerous alternatives, or forced into decisions that undermine both their legal rights and their long-term financial stability.

Who Uses Consumer Legal Funding and Why

Consumers who turn to CLF are not seeking to finance their litigation. They are seeking financial stability. On average, CLF transactions range between $3,000 and $5,000. These monies are used for rent, mortgage payments, utilities, groceries, childcare, transportation, and medical co-pay. In many cases, it is differences between maintaining housing or facing eviction, between keeping a car or losing the ability to get to medical appointments or work.

CLF is non-recourse. If the consumer does not recover in their legal claim, they owe nothing. That structure places all financial risk on the provider, not the consumer. It is precisely this risk allocation that distinguishes CLF from loans and traditional credit products, and it is why courts and legislatures in numerous states have recognized that CLF is not a loan.

When lawmakers impose loan-based frameworks on CLF, including usury caps, amortization requirements, or repayment obligations disconnected from case outcomes, the product becomes economically impossible to offer. The result is not a cheaper product. The result is no product at all.

The Immediate Impact of CLF Disappearing

When CLF exits a state market, the effects are immediate and measurable.

First, consumer access disappears. Providers cannot operate under regulatory structures that ignore the non-recourse nature of the product. Capital exits the market, and consumers lose an option that previously helped them remain financially afloat during litigation.

Second, consumers are forced into inferior alternatives. Without CLF, injured individuals frequently turn to credit cards, payday lenders, installment loans, or borrowing from friends and family. These options often carry guaranteed repayment obligations, compounding interest, collection risk, and damage to credit. Unlike CLF, these products do not adjust based on whether the consumer recovers anything in their legal claim.

Third, financial pressure forces premature settlements. When consumers cannot meet basic living expenses, they are more likely to accept early, undervalued settlements simply to survive. This undermines the fairness of the civil justice system and benefits defendants and insurers, not injured parties or the courts.

Misclassification Harms the Most Vulnerable Consumers

The consumers most harmed by the elimination of CLF are those with the fewest alternatives. These are individuals with limited savings, limited access to traditional credit, and limited ability to absorb income disruption following an injury.

Ironically, regulations intended to protect consumers often end up harming precisely the consumers they sought to help. When CLF is treated as a loan, the regulatory burden drives responsible providers out of the market while doing nothing to improve consumer outcomes. Consumers do not gain safer options. They lose transparent, regulated, non-recourse funding and are pushed toward products with higher risk and fewer protections.

This is not hypothetical. States that have enacted overly restrictive frameworks or applied inappropriate rate caps have seen providers exit, access shrink, and consumer choice vanish. The lesson is clear. When regulation ignores economic reality, consumers pay the price.

CLF Does Not Drive Litigation or Verdict Inflation

A common concern raised in policy debates is whether CLF encourages litigation, prolongs cases, or contributes to so-called nuclear verdicts. The evidence does not support these claims.

CLF is accessed after a legal claim already exists. It does not finance attorneys’ fees, court costs, or litigation strategy. Providers have no control over legal decisions, settlement timing, or trial outcomes. Their only interest is whether a consumer recovers at all.

Moreover, the small size of typical CLF transactions makes it implausible that they influence case strategy or verdict size. A $3,000 to $5,000 transaction used to pay rent or utilities does not drive multi-million-dollar litigation outcomes. Conflating CLF with commercial litigation finance obscures these realities and leads to policy mistakes.

A Better Path Forward for Policymakers

Legislators can protect consumers without eliminating CLF. States that have enacted thoughtful CLF statutes have focused on disclosure, transparency, contract clarity, and consumer choice, rather than imposing loan-based rate structures that do not fit a non-recourse product.

Effective regulation acknowledges three core principles. First, CLF is not a loan and should not be regulated as one. Second, consumers benefit from access to a regulated, transparent product rather than being pushed into worse alternatives. Third, clear rules provide stability for both consumers and providers.

When policymakers get this balance right, consumers retain access to a product that helps them weather one of the most difficult periods of their lives without distorting the justice system or creating unintended harm.

Conclusion

The issue confronting lawmakers is not whether Consumer Legal Funding should be subject to oversight, but whether existing and future frameworks accurately reflect how the product operates and whom it serves. When CLF is swept into regulatory regimes designed for loans or commercial litigation finance, the result is not improved consumer protection. It is the quiet elimination of a non-recourse option that many injured consumers rely on to remain financially stable while their legal claims are resolved.

Careful, informed policymaking requires recognizing that Consumer Legal Funding is distinct, limited in size, non-recourse, and consumer-facing. Regulation that acknowledges those characteristics preserves transparency and accountability without stripping consumers of choice or forcing them into riskier financial alternatives. When rules are tailored to economic reality rather than broad assumptions, consumers are better protected, markets remain stable, and the civil justice system functions as intended.

About the author

Eric Schuller

Eric Schuller

President, Alliance for Responsible Consumer Legal Funding (ARC)

Consumer

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Consumer

ARC’s Eric Schuller: The Consumer’s Attorney Is an Essential Safeguard in Consumer Legal Funding

Debates over Consumer Legal Funding tend to focus on the financial relationship between the consumer and the funding company, but one key participant is often overlooked: the consumer's own attorney.

As reported by The National Law Review, Eric K. Schuller of the Alliance for Responsible Consumer Legal Funding (ARC) argues that attorney involvement is one of the strongest consumer protections in the marketplace. Because the product is tied to a pending claim, the consumer is always represented by counsel before a funder ever sees the file. Maine and Nebraska define an eligible consumer as one represented by an attorney, Missouri permits contracts only where the consumer is represented, and Kansas limits the product to plaintiffs in a pending civil action.

Of the thirteen state laws reviewed, nine require the consumer's attorney to sign an acknowledgment in the funding contract, and two more require the consumer to certify that counsel was involved. In most of those states, a contract without the acknowledgment is void. The attorney typically confirms that disclosures were reviewed with the client, that the attorney is retained on contingency, that proceeds will flow through a trust account or settlement fund, and that the attorney has received no referral fee or other consideration from the funder.

Schuller contrasts this with payday loans, credit cards, auto title loans and even mortgages, none of which require the borrower's lawyer to attest to anything. He also highlights disclosure rules, including cumulative-amount disclosures in six states and ten-business-day rescission windows in Kansas, New York, Ohio, Missouri and Utah.

As more states weigh legislation, Schuller presents the attestation model as a proven blueprint that addresses the transaction's real structure while preserving the consumer's right to decide.

Consumer

Equal Justice Under the Law: Why Access to Justice Must Include the Ability to Wait for Justice

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

As the United States Supreme Court begins a new term, the words carved above the entrance to the Supreme Court Building deserve renewed attention: “Equal Justice Under Law.”

Those four words have greeted generations of Americans approaching the nation’s highest court. But the circumstances surrounding their placement on the Supreme Court Building make them particularly meaningful today.

The phrase was selected for the new Supreme Court Building in 1932, at a time when the United States was in the depths of the Great Depression. Millions of Americans were confronting unemployment, lost savings, financial insecurity, and uncertainty about their futures.

Against that backdrop, the nation chose to place a simple but powerful promise above the entrance to its highest court: Equal Justice Under Law.

Nearly a century later, that principle remains just as important.

Justice should not depend on wealth, influence, or a person's ability to withstand the financial pressures that can accompany a legal claim. Yet for many Americans, access to the courthouse is only part of the challenge. They also need the financial ability to remain there long enough for the legal process to work.

For an injured consumer pursuing a legitimate legal claim, a case can take months or even years to resolve. During that time, everyday financial obligations do not stop. Rent and mortgage payments still come due. Utilities must be paid. Families need food. Cars need gas, and medical and other household expenses continue.

That financial pressure can have a very real effect on access to justice.

The Economic Side of Access to Justice

When we discuss access to justice, the conversation often focuses on access to attorneys and courts. Those are essential, but there is another component that receives far less attention:

Can an individual afford to wait for a fair resolution of a claim?

A well-funded defendant or insurance company may have the financial resources to withstand a lengthy legal process. An individual consumer often does not.

That imbalance matters.

A person facing mounting household expenses may feel compelled to accept a settlement earlier than he or she otherwise would, not because the settlement represents the appropriate value of the claim, but because the electric bill, rent payment, or grocery bill cannot wait.

Consumer Legal Funding can help address that imbalance.

Consumer Legal Funding provides consumers with funds for personal and household needs while a legal claim is pending. It does not finance the litigation itself. The funds are not provided to pay attorneys, expert witnesses, court costs, or other expenses associated with prosecuting the case.

Instead, the money helps consumers meet the ordinary costs of living while their attorneys handle their legal claims.

Importantly, Consumer Legal Funding is non-recourse. Repayment depends upon the consumer obtaining a recovery from the legal claim. If there is no recovery, the consumer does not repay the funding.

Justice Should Not Have a Financial Clock

The principle of “Equal Justice Under Law” does not mean that every litigant will receive the same outcome. Nor should it.

It means that our system should provide a fair opportunity for claims and defenses to be considered on their merits.

Financial hardship should not become an unofficial clock running against an injured consumer.

Imagine two individuals with equally valid claims. One has enough savings to support a family for two years while the case proceeds. The other lives paycheck to paycheck and, because of an injury, may be unable to work at full capacity.

Both individuals technically have access to the same courts. Both may have competent attorneys. Both are protected by the same laws.

But their practical ability to pursue justice can be very different.

If one can afford to wait while the other must accept an early settlement simply to keep a roof over the family's head, we should recognize that economic circumstances have affected their ability to allow the legal process to work.

Consumer Legal Funding cannot solve every financial challenge confronting an injured consumer. But for consumers who choose it, funding can provide something extraordinarily important: Time.

Time to allow their attorneys to do their jobs.

Time for the facts to be developed.

Time for negotiations to proceed.

And time to make decisions about a legal claim based upon the merits of the case rather than the immediate pressure of household bills.

Protecting Consumers While Preserving Choice

Responsible regulation has an important role to play.

Consumers should receive clear contracts and disclosures. They should understand the cost of a funding transaction. Attorneys should acknowledge that their clients have entered into these agreements. Funding companies should never control litigation strategy, direct attorneys, or interfere with settlement decisions.

Those protections strengthen the marketplace.

But regulation should protect consumer choice, not eliminate it.

Policies that make Consumer Legal Funding unavailable or economically impractical do not eliminate the financial hardship that caused a consumer to seek funding in the first place.

The rent is still due.

The utility company still expects payment.

Groceries still have to be purchased.

Removing an option is not the same as removing the need.

A Promise That Still Matters

There is something especially significant about the fact that “Equal Justice Under Law” was placed on the Supreme Court Building during one of the most economically difficult periods in American history.

In 1932, financial hardship was not an abstract concept. It was a reality confronting millions of American families.

Yet at precisely that moment, as the country struggled through an extraordinary financial crisis, those words were chosen for the entrance to an institution intended to represent the rule of law and equal justice.

That history should remind us of something important today.

Economic hardship and access to justice have never existed in separate worlds

A legal right may exist on paper, but exercising that right can become extraordinarily difficult when a person is simultaneously worried about paying the mortgage, keeping the electricity on, buying groceries, or putting gas in the car.

As the Supreme Court begins another term, Americans will once again watch the Justices consider questions involving constitutional rights, federal law, the authority of government, and the responsibilities of individuals and institutions.

The cases will differ. The legal questions will differ. And reasonable people will disagree about how many of those cases should be decided.

But the words above the Court remain constant: Equal Justice Under Law.

Nearly a century after those words were placed on the Supreme Court Building during a period of profound economic uncertainty, their message remains relevant.

Justice should not belong only to those who can afford to wait for it.

Consumer Legal Funding helps give individuals the financial breathing room to allow the legal process to work. It does not determine the outcome of a case. It does not finance the litigation. And it does not replace the attorney-client relationship.

It helps consumers address the realities of everyday life while their legal claims proceed.

That is why Consumer Legal Funding belongs in the broader access-to-justice conversation.

Because the promise carved above our nation's highest court should extend beyond the courthouse steps. The strength of a person's legal rights should not be determined by the size of their bank account.

Consumer Legal Funding: Funding Lives, Not Litigation.

A version of this commentary first appeared in The National Law Review.

Commercial Consumer

ClaimAngel Reports $144M Deployed and 30,000 Fundings on Consumer Legal Funding Marketplace

South Florida consumer legal funding marketplace ClaimAngel says it has deployed more than $144 million across over 30,000 individual fundings since launching in April 2023, positioning standardised pricing as its answer to the cost criticisms that dog the consumer funding sector.

As reported by Refresh Miami, the platform runs a marketplace in which 27 funding providers compete for cases, with funders reserving a case in an average of 11 seconds. Advances carry 27.8% simple interest with no compounding and a 2x cap on total repayment, and remain non-recourse — plaintiffs owe nothing if the case is lost.

The company reports serving more than 14,500 plaintiffs and over 750 law firms, with 46 employees. A Case Equity product lets plaintiffs draw against expected case value for living expenses while litigation is pending.

ClaimAngel was co-founded by Jeremy Alters, a trial lawyer of more than two decades who was disbarred by the Florida Supreme Court in 2018 for misusing client funds, and his son Logan Alters. "I did things wrong. They were my fault. I take full responsibility for it," Jeremy Alters said, describing the company as "born out of an ethics issue." He applied for readmission to the Florida Bar in 2025.

Planned expansions include attorney funding, a secondary marketplace for buying and selling existing positions, and AngelScore, a data-driven underwriting system.