A New Era for Consumer Litigation Funding: Understanding NCOIL’s Model Bill

Consumer litigation funding regulation has been something of a Wild West, with a patchwork of differing state regulations and no federal oversight. Funding providers across the country have operated in a regulatory gray area because of this, but that may soon change.

In November 2024, the National Council of Insurance Legislators (NCOIL) took a decisive step forward by adopting a model bill that could transform how our industry operates state by state. ^[1] The Transparency in Third Party Litigation Financing Model Act creates a roadmap for states to regulate consumer litigation funding while establishing consumer protections and clear standards.^[1] This would bring much-needed accountability to our industry—accountability that USClaims fully supports because it creates protections for everyone involved in the pre-settlement funding process.

Why does this model bill matter? When someone suffers an injury and pursues legal action, everyday living expenses don’t stop coming while they wait for justice. Consumer litigation funding is a financial lifeline for many plaintiffs, but without consistent rules, the industry has faced criticism and roadblocks.

What Exactly Is Consumer Litigation Funding?

Before diving into this new regulation, let’s clarify what we’re talking about. NCOIL’s model bill defines consumer litigation funding as a financial arrangement where a company provides upfront money directly to a plaintiff in exchange for a portion of any successful future settlement or verdict.^[1] It’s structured as a non-recourse transaction, meaning a plaintiff must repay only if they win their case.^[1]

This fundamentally differs from commercial litigation funding, which finances litigation costs for businesses and law firms rather than supporting an individual plaintiff’s daily needs.^[1]
Consumer litigation funding is a financial bridge for plaintiffs in the middle of legal battles, but it cannot be used to cover case expenses or costs. Instead, it provides money for living expenses—such as rent, groceries, or medical bills—while the plaintiff’s case works through the system.

One of the biggest benefits of litigation funding is that it prevents plaintiffs from being forced into unfavorable early settlements because they can’t afford to fight their case.

The Regulatory Challenges We’ve Faced

Litigation funding’s growing popularity has highlighted several key concerns worth talking about.

1. Contract standardization: Unlike regulated industries such as auto loans or mortgages, litigation funding has lacked standardized contract formats, making it difficult for consumers to compare terms between funding companies.
2. Rate regulation: Few states currently cap funding charges, allowing some funding companies to charge rates as high as 100%. The NCOIL bill establishes a maximum allowable rate structure.
3. Licensing requirements: Virtually anyone can enter the litigation funding business without oversight. Registration requirements ensure consumers work with reputable, licensed entities and create accountability when problems arise.
4. Clear boundaries: The relationship between funders, law firms, and clients needs defined boundaries to ensure funding companies have no influence over case outcomes and that attorneys represent clients on a contingency fee basis rather than being paid from funding proceeds.

Consumer Protection Gaps

We’ve all heard the stories of vulnerable plaintiffs signing funding agreements with eye-watering fees buried in fine print, or aggressive marketing tactics targeting people at their most desperate moments. Without standardized consumer protections, the quality of service and terms vary dramatically between funding companies, leaving consumers vulnerable to predatory practices.

“At USClaims, we’ve long adhered to the principles outlined in the NCOIL model bill—even before its adoption—because we believe ethical funding is good for clients, attorneys, and the justice system,” says USClaims CEO Steve Bashmakov.

The Current State of Play

No Federal Referee Equals DIY Regulations

There’s no comprehensive federal regulation of consumer litigation funding, which has left states to figure it out on their own.

In this regulatory vacuum, the industry has made efforts to police itself. Organizations like the American Legal Finance Association (ALFA) have developed voluntary standards and best practices that advocate for fair, ethical, and transparent funding standards across the industry.^[2]

As an ALFA member, USClaims has demonstrated that voluntarily upholding high standards serves plaintiffs’ best interests while creating sustainable business relationships built on trust and transparency.

ALFA has supported creating updated legislation in six states—Oklahoma, Vermont, Indiana, Nevada, Utah, and Tennessee—that specifically regulates consumer legal funding to protect consumers from deceptive and abusive practices.^[2]

• These state laws typically include:
• Strict licensing requirements with character and fitness reviews
• Transparent contracts
• Prohibitions on funding legal costs or participating in cases
• Mandatory five-day cancellation windows
• Annual public reporting of transactions including interest rates^[2]
• Beyond legislative advocacy, ALFA requires all members to abide by a formal Code of Conduct that supports best practices and demands the highest ethical standards in legal funding.^[2]
• While these industry-led efforts have helped establish professional norms and accountability, they’re no substitute for consistent regulation with real enforcement.

NCOIL Steps Up to the Plate

Against this backdrop, NCOIL’s adoption of the Transparency in Third Party Litigation Financing Model Act in November 2024 represents a potential game-changer.

Who’s NCOIL?

The National Council of Insurance Legislators (NCOIL) isn’t exactly a household name, but it significantly influences insurance and financial policy circles. Founded in 1969, NCOIL is made up primarily of state legislators who serve on insurance and financial institution committees across the country.^[3] They develop model legislation that states can adopt or adapt, helping to create consistency across state lines while respecting state sovereignty in regulation.

What’s in the Model Bill?

The NCOIL model tackles the issues that have plagued consumer litigation funding. Let’s look at the specific provisions that matter most. Many of these provisions formalize practices that responsible funders like USClaims have already adopted.

A 36% Cap on Rates

The bill establishes an annual rate cap of 36%, plus a one-time document preparation fee set by the Department of Consumer affairs.^[1] This balances consumer protection and allows funding companies to operate sustainably. It addresses one of the industry’s most common criticisms—that rates could spiral out of control during lengthy litigation. USClaims has long maintained competitive rates within this range, demonstrating that ethical pricing and business sustainability can coexist.

Plain English Contracts

One of the smartest aspects of the model is its focus on genuine transparency. Rather than just requiring disclosure buried in fine print, the bill mandates that contracts be written in everyday language. This ensures consumers can fully comprehend contract terms without needing legal assistance to interpret them.^[1]

The legislation also eliminates surprise fees by requiring upfront disclosure of all charges and establishing a clear maximum amount the consumer could owe.^[1] This standardized approach protects consumers while giving funding companies certainty about their contractual relationships. It also mirrors the clear, transparent contract language USClaims has prioritized since our founding.

Attorney Acknowledgment Requirements

The model bill recognizes that attorneys play a crucial role in protecting their clients’ interests in funding arrangements. It requires attorneys to formally acknowledge their involvement and confirm several key protections: that they’ve reviewed the funding terms with their client, that they’re handling the case on a contingency fee basis, and crucially, that they haven’t received any kickbacks from the funding company.^[1] For attorneys, these protections reduce risk and ensure compliance from trusted funders like USClaims.

Professional Licensing with Bonding Requirements

The licensing requirements represent a significant step toward professionalizing the industry. By requiring funding companies to register with state regulators and potentially post bonds, the model bill creates accountability pathways that help ensure only financially stable, reputable companies can operate.^[1] This regulatory oversight protects consumers from fly-by-night operators while giving legitimate funding companies a clear framework for compliance.

Hands Off the Legal Strategy

Perhaps the most important aspect of the model bill is its firm stance on litigation independence. The legislation makes it crystal clear that funding companies cannot influence case strategy, settlement decisions, or any aspect of how the legal claim is handled.^[1]

For example, the NCOIL bill states that while funding companies must be notified of case outcomes, they have absolutely no say in whether, when, or for how much a case should settle.^[1] This protection ensures the attorney-client relationship remains protected and that legal decisions are made based on the client’s best interests, not the funder’s financial priorities. USClaims has always maintained this strict separation, recognizing that our role is financial support, not legal guidance.

The bill also prohibits companies from:

• Paying referral fees to attorneys, healthcare providers, or other potential referral sources.^[1]
• Accepting commissions or kickbacks from these same sources.^[1]
• Advertising false or misleading information.^[1]
• Referring clients to specific attorneys or healthcare providers.^[1]

Commercial Funding Transparency

Recognizing that commercial litigation funding operates differently, the model bill addresses it separately with requirements focused on disclosure and preventing foreign influence in American legal proceedings.^[1] This dual approach acknowledges the different risks and dynamics involved in consumer versus commercial funding.

What Happens Next?

With this model bill now available, state legislatures nationwide have a solid foundation to build upon. Some will likely adopt the model wholesale, while others may modify it to address local concerns or integrate it with existing regulations.

This approach respects the state-based regulatory system while offering a path toward greater consistency—something that benefits everyone involved, from plaintiffs and their attorneys to courts and funding providers. At USClaims, we see a future where litigation funding is recognized as a transparent and ethical tool for plaintiffs seeking justice.

Why USClaims Supports This Approach

USClaims hasn’t just advocated for smart regulation—we’ve set the industry standard by implementing these ethical practices as core business principles. And we didn’t do this because we were required to; we did it because it was the right thing to do.

Long before NCOIL drafted its model legislation, we recognized that the industry’s long-term success depended on earning trust through transparency, fair pricing, and unwavering respect for the attorney-client relationship. The NCOIL model validates our approach from day one: protecting consumers and maintaining ethical standards is good policy and good business that strengthens the entire industry’s reputation and ensures sustainable access to this critical financial resource.

Clear guidelines benefit everyone. They give consumers confidence in the funding process, provide attorneys with ethical clarity, and allow reputable funding companies like USClaims to operate consistently across state lines.

As states consider versions of this model legislation, we remain committed to maintaining the highest standards in all our funding relationships. We believe that when done right, consumer litigation funding helps level the playing field in our civil justice system.

Disclaimer: The opinions expressed in this article are our own and should not be considered legal advice. For specific guidance regarding consumer litigation funding regulations in your state, please consult with qualified legal counsel.

Sources:

1. National Council of Insurance Legislators (NCOIL). Third Party Litigation Financing Model Act – Draft. November 2024. Available at: https://ncoil.org/wp-content/uploads/2024/11/NCOIL-TPLF-Model-Draft-November-2024.pdf
2. American Legal Finance Association (ALFA). Homepage. Accessed May 2025. Available at: https://www.americanlegalfin.com/
3. National Council of Insurance Legislators (NCOIL). History and Purpose. Accessed May 2025. Available at: https://ncoil.org/history-purpose/