April 9, 2026
State-Level Consumer Litigation Funding Regulation Expands in 2026

By Julia Saunders

Key Legislative Trends 

State legislatures across the United States are increasingly focusing on consumer litigation funding (CLF), with new laws and proposed bills aimed at regulating disclosure requirements, fee structures, and funder conduct. The 2025–2026 legislative cycle reflects a broader shift toward formal regulatory frameworks rather than outright bans on litigation finance. 

New York Leads with Comprehensive Regulatory Framework 

New York has emerged as the most active state in shaping litigation funding regulations. In December 2025, the state enacted the Consumer Litigation Funding Act (A804-C / S1104A), establishing a comprehensive framework governing consumer litigation funding agreements. The law is scheduled to take effect in June 2026.  

Key provisions include: 

  • A cap limiting funder recovery to 25% of the gross settlement or judgment  
  • Mandatory plain-language contract requirements  
  • A 10-day consumer rescission period  
  • Registration and regulatory oversight of litigation funders  
  • Prohibitions on funders influencing litigation strategy or settlement decisions  

These provisions establish New York as a model jurisdiction for structured regulation of the industry (Goldberg Segalla, 2025).  

While this legislation is progress, the bill still doesn’t cap interest rates that lenders can charge, nor does it impose rules or restrictions on the types of fees that can be charged. As the legislature looks to further protect plaintiffs, these areas must be targeted for reform and additional oversight. 

Litigation funding should provide plaintiffs with a bridge to seek justice, not expose them to additional risk after trauma. (McCarthy Woodruff, 2026).  

Building on this framework, New York Senate Bill S08808 (2026) is currently under consideration. The bill would further refine regulatory structure by: 

  • Placing oversight under financial services law (Article 10 framework)  
  • Requiring annual reporting and formal registration of funding entities  
  • Standardizing contract requirements  
  • Defining covered litigation funding transactions, including advances up to $500,000 tied to case proceeds  

Rather than introducing new regulation from scratch, S08808 represents a technical expansion and administrative refinement of the 2025 law (LegiScan, 2026). 

 

National Trends in Litigation Funding Legislation (2025–2026) 

Outside of New York, state legislatures are increasingly exploring similar regulatory approaches, with several common themes emerging across proposals.

A. Consumer Protection and Licensing Frameworks

A growing number of states are considering or drafting legislation that would: 

  • Require licensing or formal registration of litigation funding companies  
  • Mandate standardized disclosures and contract language  
  • Introduce cooling-off or rescission periods  
  • Impose limits on fees or total repayment amounts, either through caps or “reasonableness” standards  

These proposals closely follow the New York model and reflect a broader shift toward treating litigation funding as a regulated financial service industry.

B. Increased Transparency Requirements

Another major trend is expanded transparency obligations. Some legislative proposals would require disclosure of litigation funding agreements: 

  • To courts  
  • To opposing parties  
  • In certain cases, in mass tort or class action proceedings  

These proposals are often linked to broader concerns about transparency in complex litigation and potential third-party influence. Similar ideas are reflected in federal proposals such as the Litigation Funding Transparency Act of 2026, which would require disclosure in federal multidistrict litigation (MDLs) and class actions (Institute for Legal Reform, 2026).

C. Control Restrictions and “Champerty-Adjacent” Reforms

Rather than reinstating traditional champerty doctrines, modern legislation tends to regulate funder conduct indirectly by restricting control and influence. Common provisions include: 

  • Prohibitions on funders directing litigation strategy  
  • Restrictions on influencing settlement decisions  
  • Limitations on referral arrangements between funders and attorneys  
  • Safeguards addressing conflicts of interest and confidentiality concerns  

These measures function as modern equivalents of champerty restrictions, focusing on maintaining attorney independence rather than banning funding outright. 

Key Takeaways 

The 2025–2026 legislative landscape reflects a clear national trend: 

  • New York is currently the leading regulatory model for consumer litigation funding  
  • States are moving toward structured regulation rather than prohibition  
  • The primary policy themes include consumer protection, transparency, and limits on funder control  
  • Additional states are expected to introduce New York–style frameworks in upcoming legislative sessions  

Connecting Regulation to Access to Justice 

As state-level regulation of litigation funding continues to evolve, the broader conversation remains centered on how to balance consumer protection with meaningful access to justice. Stronger oversight, clearer disclosures, and fairer fee structures all play an important role in ensuring plaintiffs are treated equitably within the litigation finance ecosystem. 

Organizations like The Milestone Foundation operate within this same landscape, providing pre-settlement funding intended to support plaintiffs facing financial pressure during long litigation timelines. As regulatory frameworks develop, the focus on ethical, transparent funding models remains central to ensuring that plaintiffs can pursue their claims without being forced into premature or disadvantaged settlements due to financial hardship. 

 

Sources 

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