On December 19, 2025, New York Governor Kathy Hochul signed into law a landmark piece of legislation that changes the game for consumer litigation funding in the Empire State.[1][2]
The Litigation Funding Act (A 9442/S 1104-A) marks the culmination of an eight-year effort to bring consumer protection, transparency and oversight to the consumer litigation funding marketplace that has operated for too long in the shadows, where some funders would charge rates as high as 124%, leaving vulnerable plaintiffs with almost nothing from their settlements.[1][2][3][4]
For personal injury victims and their attorneys, this statute is a major step forward. It establishes robust protections while preserving access to the financial support many plaintiffs desperately need while pursuing compensation for their injuries. Here’s what attorneys should know about this new regulatory framework and what it means for their practice.
The Problem This Law Addresses
Consumer litigation funding provides cash advances to plaintiffs pursuing personal injury, employment, or other tort claims. These are non-recourse transactions, in which repayment is required only if the plaintiff receives compensation for their claim, and which can be lifesaving for individuals struggling to pay rent, medical bills, or utilities while awaiting justice.
But here’s where things can be bad. The lack of law and regulation created a perfect storm for abuse. Certain unethical funders charged exorbitant, compounding interest rates—in some cases reaching 124% per year—that left plaintiffs with almost nothing after settlement.[4]
Consider real-world examples: One plaintiff received an $18,000 advance and owed $33,000 just six months later. Another received an advance of $27,000 for a slip-and-fall case; after the funder took nearly $100,000 and attorney fees were paid, the plaintiff walked away with $111.[5]
These predatory practices harm consumers and make your job harder. When plaintiffs realize that most of their settlement will go to a funder charging triple-digit rates, it results in litigation dragging out and increases costs for everyone involved.
Key Provisions of the New Law
The Litigation Funding Act establishes sound consumer protections that will change how litigation funding operates in New York.
The 25% Recovery Cap
This is significant and a first in the nation. A funding company’s fees are now capped at 25% of the gross proceeds from the litigation.[1][2] This ceiling ensures the bulk of any settlement or judgment goes to the plaintiff who suffered the injury, not to some funder.
For firms, this means you’ll be required by the law to provide the actual settlement amount so they can calculate their maximum allowable collection. While this adds an administrative step, it’s a small price to pay for the protection it provides your clients.
Mandatory Disclosure and Transparency
Contracts must include clear schedules to help consumers understand how much they will have to pay in charges.[1][2] No smoke and mirrors. All charges must be disclosed upfront, and consumers get a 10-business-day right of rescission, meaning they can cancel without penalty.[1][2] This gives them real time to seek independent advice or simply think it over.
Attorney Acknowledgment Requirements
The statute requires you, as their attorney, to execute a written acknowledgment when your clients take out funding.[1][2] This ensures you’re aware of the arrangement and have reviewed the disclosures with your client. No more surprises, where half way through the life of the case you learn that a client obtained a funding without your knowledge.
Just as importantly, you have to acknowledge you have not received a referral fee or anything of value from a funder, something that would be a conflict of interest.[1][2]
Licensing and Oversight
All litigation funders must register with the New York Department of Financial Services (DFS), which will determine the eligibility of each applicant before issuing a certificate of registration. Once registered, funders must submit annual reports to DFS detailing every transaction, and DFS will make this information publicly available (while deidentifying company and consumer names). The superintendent of DFS has the power to revoke or suspend registrations for violations, creating real accountability and the ability to refer violators to the NY Attorney General for violations in an industry that has operated in the shadows for far too long.
We suspect not all funders will either seek to get licensed or will obtain a license. This could jeopardize the client ability to secure additional funding after January 2027 if the prior funder is unlicensed.
Prohibited Practices
The Litigation Funding Act bans several practices that were commonplace for some unethical funders and which harmed consumers and complicated litigation:
- Funders cannot pay or accept referral fees or anything of value to law firms or healthcare service providers and their respective employees.[1][2]
- A funding company cannot fund behind another known existing funder without paying off the first funder’s balance, though simultaneous fundings are allowed when the consumer, the consumer’s attorney, and all involved funding companies consent in writing.[1][2]
- Funders are prohibited from influencing settlement decisions or legal strategy.[1][2]
This last prohibition is critical. It ensures that settlement authority rests where it belongs: with you and your client, not with some third-party financier whose interests may not align with your client’s best outcome.
What This Means for Your Practice
The bill’s effective date is June 17, 2026, for most provisions, giving everyone time to prepare. However, registration and reporting requirements don’t take effect until approximately January 2027, giving funders more time to comply with the new oversight structure. Licensing will be required no later than December 2026 and we plan to apply for a license as soon as possible.
Here’s what’s important to understand: any funding agreements entered before June 17, 2026, are not subject to the new law’s protections.[1][2] But your clients who take out funding on or after that date will be significantly better protected.
The cap limiting the funder’s recovery to 25% of the gross proceeds means that even in cases where litigation takes longer than expected, or results are lower than anticipated, clients won’t face the devastating scenarios we’ve seen where funders walked away with most of the settlement.
With funders prohibited from influencing settlements and subject to a recovery cap, you’ll likely find it easier to negotiate reasonable settlements. The days of plaintiffs being forced to hold out for unrealistic amounts just to satisfy triple-digit funder returns are ending.
The licensing requirement means you can verify your clients are working with legitimate, registered funders. This gives you an easy way to spot red flags early in the process. You’ll need to execute attorney acknowledgments when clients take out funding and provide the actual settlement amount to funders in order to calculate the maximum amount that funders can recover. Yes, it’s more paperwork. But it creates important safeguards that protect your clients and you from disputes down the road.
New York Joins a Growing Movement
New York’s law represents the latest development in a broader trend toward regulating consumer litigation funding. New York now joins other states that regulate the industry, including Illinois, Indiana, Missouri, Nebraska, Nevada, Ohio, Oklahoma, Tennessee, Utah, and Vermont.[6][7][8][9][10][11][12] Litigation funding serves an important purpose, but it needs oversight to prevent abuse.
What’s remarkable is the bipartisan support this legislation received. Consumer advocacy groups like NYSTLA, labor unions, religious leaders, and ALFA worked together to enact the law. [13] Both sides recognized that clear standards benefit everyone, first protecting consumers while preserving access to necessary financial support during litigation.
Our Commitment to Fair Practices
USClaims has consistently advocated for exactly the type of law and oversight that New York has now enacted. Our business model has always prioritized fairness, transparency, and accountability:
- We use simple interest, not compounding rates.
- We provide clear repayment schedules.
- We offer a right of rescission period.
- We require written attorney acknowledgment.
These practices mean USClaims is already compliant with the intent and language of the new law. We’ll register with the DFS as required and continue working with our in-house compliance team to meet all reporting requirements.
We’re celebrating this statute as a major achievement in providing protection to victims. The days when funders could demand payoffs of 5 to 10 times the funds advanced are over, and that’s exactly as it should be.
Looking Ahead
The Litigation Funding Act recognizes that access to justice requires protections against exploitation when victims may require financial support while they pursue justice. By capping returns, requiring transparency, prohibiting conflicts of interest, and establishing regulatory oversight, New York has struck a balance that puts victims first.
For law firms, this statute simplifies relationships with funders and provides critical protections for clients. For plaintiffs, it ensures they’ll receive the bulk of their just deserved settlements. And for the litigation funding industry, it provides clear rules that legitimate companies can follow while weeding out unscrupulous and unethical funders.
As we move into 2026, USClaims looks forward to continuing to support attorneys and their clients under this new framework. We’re ready to answer any questions about how the statute affects your practice and to demonstrate our commitment to the transparency and fairness it requires.
Disclaimer: The opinions expressed in this article are our own and are not legal advice. For specific guidance regarding consumer litigation funding regulations in your state, please consult with qualified legal counsel.
Sources
- https://www.nysenate.gov/legislation/bills/2025/A804/amendment/C
- https://www.nysenate.gov/legislation/bills/2025/S1104/amendment/A
- https://legalfundingjournal.com/new-york-enacts-landmark-consumer-legal-funding-legislation/
- https://atra.org/hidden-influence-how-third-party-litigation-financing-fuels-lawsuit-abuse/
- https://www.transre.com/claims-update-third-party-litigation-funding/
- https://law.justia.com/codes/illinois/chapter-815/act-815-ilcs-121/
- https://ncoil.org/wp-content/uploads/2023/11/Indiana-TPLF-Code.pdf
- https://revisor.mo.gov/main/OneSection.aspx?section=436.558
- https://nebraskalegislature.gov/laws/statutes.php?statute=25-3305
- https://nevada.public.law/statutes/nrs_604c.310
- https://law.justia.com/codes/oklahoma/title-14a/section-14a-3-815/
- https://law.justia.com/codes/tennessee/title-47/chapter-16/section-47-16-110/
- https://www.insurancejournal.com/news/east/2026/01/07/853304.htm
