By: Rachel McCarthy & Tabitha Woodruff
New York’s new Consumer Litigation Funding Act marks an important step toward reforming an industry that has long operated with limited oversight and, in many cases, at the expense of the very people it was meant to help.
Set to take effect in June, the law introduces stronger consumer protections, including plain-language contracts and a cap preventing funders from taking more than 25% of a plaintiff’s settlement or judgment. These changes represent meaningful progress—but they are only the beginning.
Why Litigation Funding Exists
Litigation funding was originally designed to serve as a financial bridge for plaintiffs navigating the often lengthy legal process. Pre-settlement and post-settlement funding provides support for everyday living expenses—not legal fees—so individuals can maintain stability while pursuing their case.
For many plaintiffs, especially those from low- and middle-income households, the alternatives are limited:
- Accept a lower settlement early just to cover immediate expenses
- Take on high-interest debt
- Risk their financial security while waiting for a case to resolve
In these moments, funding can be a lifeline. But without proper safeguards, it can also create new financial burdens.
The Problem with For-Profit Funding
Today, the litigation funding landscape is largely unregulated at the federal level. For-profit funders often charge annual percentage rates ranging from 30% to over 100%, far exceeding traditional lending products like credit cards.
Because these advances are non-recourse—meaning repayment is only required if a case is successful—many lenders operate outside traditional consumer protection laws. This structure allows them to impose complex and often excessive repayment terms on plaintiffs who are already in vulnerable situations.
What This Looks Like in Practice
Consider three hypothetical families who each receive a $10,000 advance while waiting for their case to resolve:
Family A (15% simple interest): Owes $14,500 after three years
Family B (30% compounded): Owes approximately $24,325
Family C (50% compounded): Owes over $43,000
While these scenarios are illustrative, they reflect a broader reality: high-cost funding can significantly reduce the financial recovery plaintiffs ultimately receive—limiting their ability to rebuild after a difficult experience.
What the New Law Changes
The Consumer Litigation Funding Act introduces several important protections, including:
- A cap limiting funders to 25% of a settlement or judgment
- Clear disclosure requirements in plain language
- A 10-day right of rescission for consumers
- Registration and oversight by the New York Department of State
- Restrictions on misleading practices and interference in legal decisions
These measures bring much-needed transparency and accountability to the consumer litigation funding industry.
Where More Work Is Needed
Despite this progress, key gaps remain.
The law does not place limits on interest rates or fully regulate the fees that can be charged—leaving room for practices that may still disadvantage plaintiffs. As policymakers continue to evaluate the industry, these areas will be critical to address to ensure comprehensive protection for plaintiffs.
A Better Path Forward
Pre-settlement and post-settlement funding should serve its original purpose: providing plaintiffs with the financial stability they need to pursue justice—not creating additional financial strain.
At The Milestone Foundation, we believe there is a better way. As a nonprofit litigation funder, our model is designed to provide fair, transparent support without prioritizing profit. Our goal is simple: to ensure that no one has to choose between their financial stability and their right to seek justice.
Looking Ahead
New York’s new law is a meaningful step forward—but it is not the finish line. Continued reform, oversight, and innovation are essential to creating a system that truly works for plaintiffs.
Because access to justice should never depend on the ability to afford the wait.