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What is a better investment, Commercial or Consumer Legal Funding? (2 of 2)

What is a better investment, Commercial or Consumer Legal Funding? (2 of 2)

Executive Summary
  • Consumer legal funding is a much more consistent and predictable asset class
  • Headline risks, while real in the earlier days of the industry’s evolution, are now consistent with more mature consumer finance asset classes
  • Consumer legal funding has a strong ESG component through the social benefits provided to the segment of society that relies on it the most
Slingshot Insights:
  • On a risk-adjusted basis, factoring in volatility and predictability of returns, the pre-settlement advance industry outperforms the commercial legal finance industry
  • Duration predictability, return rates and loss rates are the main factors for out-performance
  • Investors would be mistaken to overlook the consumer legal finance market in assessing various non-correlated investment asset classes
  • As with any asset class, manager selection is critical to investment success
In part 1 of this article, I provided some background on the consumer litigation finance market, with a focus on the pre-settlement advances sub-sector which is the largest segment of the consumer legal finance market.  Part I also discussed how the market has regulated, evolved and bifurcated. In the second part of this two part series, I discuss the underlying economics of the pre-settlement advance subsegment, the status of regulation and some thoughts on how the market continues to evolve and why institutional investors are increasingly getting involved. Underlying Economics One of the first research reports that attracted me to the PSA market was a 2018 study that was undertaken by Professors Ronen Avraham and Anthony Sebok entitled “An Empirical Investigation of Third Party Consumer Litigant Funding”.  It was the first large scale empirical study of consumer legal funding in the United States which analyzed over 100,000 funding requests over a 12-year period provided by one of the largest consumer legal funders in the US.  While the analysis was inherently skewed because it came from a single funder, the large size of the data set is likely representative of the broader market, and hence many of the insights highlighted by the authors are likely true of the broader market to one degree or another, with certain insights being specific to the funder and its approach. Without going into the details of the report (see highlights below), suffice it to say the report demystified much of the industry and debunked many of the criticisms that were levelled at the industry by naysayers and those with an economic incentive to ensure the industry was not successful. Perhaps “lying” is a bit harsh, but there were certainly many distortions being promulgated about the industry that were neither present in the data nor a reflection of the specific funder’s business. Source: https://www.americanlegalfin.com/alfaresources/ On the plus side, the research discovered that while loss rates were relatively high at 12% (again, possibly a consequence of the risk & return threshold of this particular funder) there were numerous instances of the funder taking “hair cuts” (i.e. reducing their accepted returns to below contracted levels) for the benefit of the consumer.  In other words, the funders ‘have a heart’ and will proactively reduce their return expectations to leave the injured party in a position that is more equitable than if they stuck to their contracted terms.  On the negative side, the net return profile was 44% per annum, which suggests that even after losses and “hair cuts” this is an expensive form of financing. Keep in mind, this study was over a 12-year period prior to 2018, and the rates today are likely not as high as they were in the beginning of the industry due to competition and regulation. A second explanation for the relatively high rates is that depending on the funder’s risk profile, the funder may be willing to take on more risk (i.e. accept more losses) than another funder in return for a higher rate of interest. Whereas another funder may be more conservative and have stricter underwriting standards, accepting fewer cases and lower loss rates, but also charging lower rates of return. Also keep in mind that given how litigious a society the US has become, we must appreciate that inherent in the personal injury system is a higher level of frivolous claims than you might fund in other jurisdictions which could also explain a higher loss rate. For me, this report legitimized (i) the need for, and societal benefits of, this form of financing, (ii) the size of the total addressable market, and (iii) that the competitors in this market (while likely earning an oversized return in the early days of the industry) were flexible with consumers and willing to forego returns to make the outcome fair for all interested parties. In other words, it appeared the market was functioning similar to other consumer-facing finance markets. Benefits of Diversification, Loss Rates & Durational Certainty As I looked at the PSA market, I looked at it through the lens of both the private equity market and the commercial legal finance (CLF) market, and there a few notable differences that make this a more attractive market than commercial legal finance.  First, the portfolios inherent in many funders’ businesses are highly diversified.  With an average financing size of $3,000, there are hundreds to thousands of claims in any given portfolio.  With diversification comes stability, and with the inherent low overall loss rates comes a predictability of returns – all music to the ears of an investor. The one significant problem that appears to be persistent in the commercial legal finance market is the prevalence of overly concentrated portfolios and high concentration limits within fund documents. The consequence of high concentration is high volatility, and that is exactly what is present in most CLF portfolios, hence the increasing need to apply expensive insurance.  The other issue for most CLF investments is uncertainty about duration. The personal injury legal market is fairly predictable from a timing perspective, and because the financing is interest rate based (as opposed to tied to a fixed multiple of capital), time is not your enemy (with some exceptions) from an investor’s perspective. CLF on the other hand is very unpredictable from a duration perspective, varying from months to several years. As many commercial funding contracts cap returns to a multiple of drawn capital, time is initially your friend but ultimately your enemy. The unpredictable nature is the bane of the existence for publicly listed commercial legal finance firms, as their shareholders want predictable case outcomes generating predictable returns and cashflows, but the portfolios are inherently unpredictable, and so many times the public shareholders are disappointed. Accordingly, their inherent cashflow volatility prevents their stock prices from reflecting true value (said another way, their stock prices reflect the true value of their businesses after adjusting for the unpredictability of their cashflows). The PSA market, on the other hand, is very predictable, which is why it has been able to obtain risk ratings and thereby attract conservative institutional capital at a relatively low cost of capital.  As an investor, I would take a stable 10-15% return all day along in the face of a volatile return profile in the CLF market that can vary from -10% to +30%. They may (emphasis on “may”) both average out to the same return over the long run, one just allows you to sleep much better at night. Similarly, from a business owner’s perspective, stable and predictable returns will always be more highly valued than volatile returns, and so as a business owner, you are significantly better off aiming for predictability for a given return profile.  In addition, this will allow business owners to create equity value that they can later monetize through the sale of their business, which is something CLF managers will have difficulty doing due to the volatility of their portfolios. Regulation Another aspect of an industry’s underlying economics is the consistency of the regulatory regime and the potential impact changes in regulations could have on the industry and its economics. On this item, there was less certainty at the time I made my first investment, but as time has progressed, it is clear that more and more states are considering or implementing new regulations for the PSA industry. Legal doctrines of champerty and maintenance are generally being set aside, but not always. Some states view PSA as loans, and hence subject to usury limitations, whereas other states have determined they are not loans because they are non-recourse other than to the outcome of the case, which precludes them from the definition of loans. Some states, like West Virginia, have placed onerous interest rate limitations which have essentially decimated the industry, whereas others have put in place more reasonable limitations.  Some states have come out against PSA and others believe it is a necessary part of a functioning economy and supportive of individual rights (Minnesota is still ruling on whether funding is a loan). The Consumer Finance Protection Bureau (CFPB) has been monitoring the PSA market since 2011, but it is not quite clear whether they have the authority to regulate the industry and attempts by the CFPB to do so have been rebuffed for the most part – the key distinction seems to be whether these are recourse loans or non-recourse advances. The first is a loan product arguably under the purview of the CFPB, and the second is not contemplated under the CFPB’s mandate. It appears to date the CFBP has only pursued post-settlement lenders and structured settlement providers, which are a different part of the consumer market. Today, regulatory risk remains in the market as most states have not contemplated or implemented regulations, but no different than the payday loan market, done properly and without undue influence from interested parties but in the context of the market’s economic reality and keeping consumer rights in mind, a regulated marketplace brings stability to the market and standards that are ultimately beneficial for consumer and market participants who rely on stability. A ’Feel Good’ Asset Class Beyond the hard numbers, the risk profile and the cash-on-cash returns, lies the “feel good” nature of this asset class, which is what attracted me to the commercial legal finance market.  For all of the headline risk and the early profiteering that happens in every industry, PSA is a necessity in the market and becomes increasingly important as our societies become further economically stratified and the middle class continues to thin. Despite its costs, and there are good economic reasons for its cost (within reason), it provides a strong societal benefit to allow those whose lives have been turned upside down as a result of an accident that has had health (mental & physical), financial and personal costs that most of us cannot imagine. The industry represents a ‘ray of hope’ for someone who may have lost hope due to their circumstances.  I would posit that the industry itself is not predatory (although I will admit there are profiteers), but in fact is a tool to be used against the predatory insurance companies who are not being held accountable by state regulators because it is impossible for the regulators to respond to every single personal injury claim.  If nothing else, insurance is designed to help the injured and the remediation should be swift and commensurate with the financial damage.  Having to wait 3-4 years for a settlement outcome and pay out of pocket for hospital bills is anything but swift or commensurate, and is merely a tactic by insurance companies to benefit from the time value of money (i.e. a dollar today is worth less in a year’s time).  Investors can take comfort in the fact that funders do not pursue frivolous claims because the risk/reward of doing so upsets the predictability of the industry’s cashflows. Then there are Environmental, Social & Governance (ESG) considerations….  In a world full of ‘ESG washing’, legal finance is perhaps one of the most ESG compliant asset classes that exist.  The underlying nature of the claim is rooted in justice, and pre-settlement advances allow for justice to prevail by leveling the playing field between the impecunious injured party and the wealthy insurer with time, money and lawyers at their disposal. The social benefits of litigation are clearly in good alignment with investing in those activities that have a positive impact on society, even if imperfect.  As strong as the ESG characteristics are in the commercial legal finance markets, they are even stronger in the PSA market because the impact is measurable and directly impacts an individual’s life.  All one has to do is review some of the industry testimonials to understand the impact this form of financing can have on one’s life, and there are tens of thousands of examples of this impact occurring on a yearly basis. As investors consider the headline risk, they should also give weight to the ESG benefits of the asset class. PSA Today While many facets of the PSA market look similar today to what they were at inception, underneath the exterior is a tale of two worlds. From a competitive perspective, there is a segment of the market that has clearly positioned themselves as market leaders and have achieved a level of scale and efficiency that has allowed them to tap into the most conservative and sophisticated levels of capital, in part due to an overall low risk profile and in part due to being strong operators. From a regulatory perspective, this industry will likely be regulated at the state level and that regulation is well underway. I would expect by the end of this decade a majority of states will have some form of regulation or guidance in place and by the end of next decade most, if not all, will. From a competitive perspective, we are now seeing some level of consolidation as some of the larger players are starting to acquire competitors either to bulk up their own operations or to expand into adjacent markets like medical receivables/liens.  Regulatory standards will force all market participants to behave appropriately and will generally raise the standards in the market for the benefit of funders and consumers. From a funding perspective, we will continue to see larger funders tap the securitization market for relatively inexpensive financing, or to align themselves with captive sources of financing from institutional investors.  In other words, as much as the industry has changed in the last two decades, we should expect to see a similar level of change going forward, but we should never lose sight of the end consumer and the benefits it brings to their lives. After all, someone needs to counter the vast resources of the insurance companies, which left unchecked, will silently inflict damage upon individuals and their families. Slingshot Insights  I have often wondered why institutional investors quickly dismissed the consumer legal finance asset class solely due to headline and regulatory risk.  I came to the conclusion that the benefits of diversification are significant in legal finance, and so this factor alone makes consumer legal finance very attractive.  Digging beneath the surface you will find an industry that is predicated on social justice (hence, strong ESG characteristics), and while there has and continues to be some bad actors in the industry, there has been a clear bifurcation in the market with the ‘best-in-class’ performers having achieved a level of sophistication and size that has garnered interest from institutional capital as evidenced by the large number of securitizations that have taken place over the last few years (7 by US Claims alone).  This market has yet to experience significant consolidation, and recent interest rate increases have likely had a negative impact on smaller funders’ earnings and cashflow, which may present an impetus to accelerate consolidation in the sector. As always, I welcome your comments and counter-points to those raised in this article.  Edward Truant is the founder of Slingshot Capital Inc. and an investor in the consumer and commercial legal finance industry.  Slingshot Capital inc. is involved in the origination and design of unique opportunities in legal finance markets, globally, investing with and alongside institutional investors. Disclosure: An entity controlled by the author is an investor in the consumer legal finance sector.
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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.

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.

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.