By Rachel McCarthy

North Carolina recently enacted the Prohibit Litigation Investments Act, legislation intended to restrict outside investment in litigation. If you google it, all major headlines tout North Carolina as the “first state to ban third-party litigation financing.” These headlines are misleading as they miss a major component. While much of the discussion surrounding the Act has focused on its limitations on litigation investment, one aspect deserves equal attention: the law excludes consumer litigation funding. 

The Statutory Exception 

The Act itself makes this distinction clear. Section 66-512(3)(g) excludes from the definition of a prohibited litigation investment: 

“The provision of money or other financial support to a party for personal and household expenses during the pendency of a civil proceeding so long as the money or financial support is not used for the fees, costs, and expenses of the civil proceeding.” 

This language is significant because it confirms that the General Assembly did not prohibit financial assistance provided to consumers for their day-to-day living expenses while their legal claims are pending. Instead, the exclusion recognizes that helping plaintiffs pay for necessities such as housing, food, utilities, transportation, and similar household expenses serves a purpose that is distinct from investing in litigation itself. 

Commercial Litigation Investment vs. Consumer Litigation Funding 

Although the terms are sometimes grouped together under the umbrella of “litigation funding,” commercial litigation investment and consumer litigation funding serve fundamentally different markets. 

Commercial litigation investment typically involves sophisticated investors providing capital to businesses or law firms in exchange for a financial interest tied to the outcome of commercial litigation. These transactions are often structured as investment vehicles involving large-dollar business disputes. 

Consumer litigation funding, by contrast, provides financial assistance directly to individual plaintiffs while their cases are pending. These funds can help cover essential living expenses such as rent, mortgage payments, utilities, groceries, transportation, or medical costs during what can be a lengthy litigation process. 

Section 66-512(3)(g) demonstrates that the General Assembly recognized these distinctions and intentionally treated consumer funding differently from commercial litigation investment. 

Why the Exception Matters 

For many injured individuals, litigation is not simply a legal process—it is a financial challenge. 

A plaintiff who has suffered a serious injury may be unable to work for months while waiting for a case to resolve. Insurance companies and defendants often have substantial financial resources and can afford lengthy litigation. Individual plaintiffs frequently cannot. 

Consumer litigation funding can help bridge that gap by allowing plaintiffs to meet basic financial obligations without feeling compelled to accept an early settlement solely because they need immediate cash. 

Let it be noted that North Carolina does have strict rules and regulations around plaintiff funding, and therefore not many traditional funding companies will fund in that state. The state protects consumers by having a ~43% interest cap per year for funding over $25k, and an interest cap of ~16% for advances that are less than $25k. Since these rates are lower than most funding companies will provide, most simply avoid North Carolina (however that is not the case with the Milestone Foundation, as our low rates are compliant with North Carolina thresholds.) 

Preserving Access to Justice 

The consumer funding exception also reflects broader access-to-justice considerations. 

Individuals pursuing legitimate claims often face significant delays before receiving compensation. During that time, they may experience lost wages, mounting medical bills, and other financial pressures. 

Without access to financial assistance, some plaintiffs may abandon valid claims or accept settlements below fair value simply because they cannot afford to wait. 

By expressly excluding financial support for personal and household expenses from the Act’s prohibitions, North Carolina preserved an option that may help level the playing field between individual plaintiffs and well-funded defendants. 

Looking Ahead: Increased Statewide Regulation 

As litigation finance continues to evolve, policymakers will continue debating the appropriate regulation of different funding models. Just within the past year we have seen an increase in states pursuing legislation to regulate litigation funding, with New York and California being two major models. North Carolina’s Prohibit Litigation Investments Act demonstrates that state models need not and will not be treated identically. 

I believe the press around North Carolina’s Act has been intentionally broad, so consumers assume plaintiff funding is included in the definition of prohibited litigation investments and thus would not be an option for them. But by expressly excluding financial support for plaintiffs’ personal and household expenses, the General Assembly acknowledged that access to justice for individual consumers raises different considerations than commercial investment in lawsuits, and should be considered separately.