New York Litigation Funding Act FAQs
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Disclaimer: This page is provided for informational purposes only and is not intended as legal advice.
In February 2026, NY’s governor signed the Consumer Litigation Funding Act (the “Act”), a comprehensive piece of legislation regulating consumer litigation funding. It creates new rules for funding companies, establishes consumer protections, requires attorney acknowledgments, and limits the amount of charges a funding company can collect from a settlement, among other things.[1]
The law is codified as Article 10 of New York’s Financial Services Law and is designed to provide for transparency and oversight while preserving access to New York consumer litigation funding for plaintiffs who need financial assistance while they are waiting for their legal claims to be resolved.
Below, we provide answers to some of the most frequently asked questions attorneys have about this new legislation.
Basics About NY’s Consumer Litigation Funding Act
What Is New York’s Consumer Litigation Funding Act?
New York’s Consumer Litigation Funding Act establishes a regulatory framework for consumer litigation funding in the state. The legislation is intended to require transparency, strengthen consumer protections, and provide oversight of litigation funding companies.
Key provisions of the Act include:[1]
- Registration requirements for consumer litigation funding companies, including a review of the company’s character and fitness, as well as information about its officers and directors.
- Mandatory disclosures designed to help consumers understand funding terms and charges.
- A 10-day right of rescission that allows consumers to cancel transactions.
- Limits on the amount a funding company can collect from a settlement or judgment.
- Attorney acknowledgment requirements for funded transactions.
- Restrictions on certain funding practices, including funding behind existing funders without paying them off.
- Annual reporting obligations and regulatory oversight by the New York Department of Financial Services (NY DFS).
Together, these changes create a standardized and transparent framework for litigation funding in New York while preserving access to funding for consumers pursuing legal claims.
Where Do I Find a Copy of the Act?
Visit the New York State Assembly website to view the full text of New York’s Consumer Litigation Funding Act. The law is codified as Article 10 of New York’s Financial Services Law and contains the complete statutory requirements governing consumer litigation funding transactions.
When Is the Act Effective?
The Consumer Litigation Funding Act in New York take effect on June 17, 2026. However, the registration and reporting requirements will be effective on February 13, 2027, and will require regulatory implementation. Below are the key dates attorneys, consumers, and funding companies should be aware of:
- June 17, 2026: Most substantive provisions of the Act become effective, including contract requirements, disclosure obligations, attorney acknowledgment requirements, consumer protections, rescission rights, charge limitations, and restrictions on funding practices.
- February 13, 2027: The registration and reporting requirements will become effective. Amont other things, this means consumer litigation funding companies must have applied for registration with the New York Department of Financial Services (NY DFS)z by no later than that date to engage in consumer litigation funding transactions in New York.
Because implementation is occurring over an extended period, attorneys and consumer funding companies should monitor NY DFS guidance and rulemaking activity for additional compliance requirements as they become available.
Attorney Responsibilities Under the New Statute
What Are Attorneys’ Obligations Under the New Statute?
Although the Act applies primarily to litigation funding companies, it also places important responsibilities on attorneys. The statute requires attorneys who represent the consumer seeking funding to execute an Acknowledgment of Counsel (AOC) for a funding contract to be valid.[1]
Attorneys should also be aware of several other provisions. For example, the law requires disclosure of the gross settlement amount for purposes of calculating the statutory cap. In addition, attorneys should be aware of restrictions involving multiple funding arrangements and the requirement that funding companies be properly registered once the registration provisions become effective.
Some operational details may ultimately be addressed through future NY Department of Financial Services (NY DFS) regulations, so attorneys should continue monitoring developments as implementation progresses.
Does the Statute Require Law Firms to Disclose Settlement Amount?
Yes. The Act requires an attestation disclosing the final gross recovery amount. This is so that the consumer litigation funding company can determine whether the amount collected complies with the law’s limitations: The maximum amount that a funding company may collect cannot exceed the funded amount plus 25% of the gross proceeds recovered from the claim. [1] Attorneys play an important role in helping confirm compliance with the statutory cap.
Does an Attorney Need to Sign an Acknowledgment of Counsel?
Yes, the Consumer Litigation Funding Act requires the attorney representing the consumer to execute an Acknowledgment of Counsel (AOC). If the required acknowledgment is not completed, the funding contract is null and void.[1]
By signing the AOC, the attorney attests that:
- They reviewed the mandatory disclosures with the consumer.
- They are being paid on a contingency basis pursuant to a written fee agreement.
- All proceeds from the legal claim will be disbursed through the attorney’s trust account or a settlement fund.
- They are obligated to take reasonable steps to distribute settlement proceeds and facilitate compliance with the funding agreement.
- They have not received, and will not receive, any referral fee or other consideration from the funding company.
- They have not provided tax, financial, or planning advice regarding the funding transaction.
These requirements are intended to increase transparency while ensuring that attorneys remain independent from the funding company.
Can an Attorney Allow Another Funder to Fund Behind an Existing Funding Company?
No. The statute expressly prohibits a funding company from providing funding when another company already has an unsatisfied interest in the same claim unless the prior funding company is first paid off or otherwise agrees in writing.[1] This restriction helps prevent excessive funding obligations from accumulating against a single legal claim.
What If My Client Took Out Funding Prior to the New Litigation Funding Statute?
New York’s Consumer Litigation Funding Act does not apply to funding agreements entered into before June 17, 2026. Existing contracts remain governed by their terms, subject to general principles of contract law.
For maximum transparency, USClaims will provide payoff statements identifying all funding agreements associated with a claim, the date each agreement was executed, and which transactions are subject to the new law. This can help attorneys distinguish between pre-Act and post-Act funding arrangements when reviewing payoff obligations.
Are Communications Between a Law Firm and Funding Company Protected Under the Statute?
Yes, the Act expressly provides that communications between the consumer’s attorney and the consumer litigation funding company relating to the transaction fall within the scope of protections such as attorney-client privilege and work-product doctrine.[1] This helps preserve confidentiality while allowing attorneys and funding companies to exchange information necessary to evaluate and administer funding transactions.
Funder Responsibilities Under the New Statute
Do Funders Have to Register?
Yes. Under the new law, consumer litigation funding companies will have to register with the New York Department of Financial Services (NY DFS). The registration process requires companies to submit an application and provide information that may be required by the regulator. Companies will also be subject to annual reporting requirements.[1]
The New York Department of Financial Services is currently developing the regulations and procedures that will govern registration. Those regulations are not expected until later this year.
What Are Attorneys’ Obligations Under the New Statute?
Do Funders Have to Register?
How Can I Verify If a Funder Is Licensed?
The process for verifying whether a consumer litigation funding company is registered has not yet been announced. Registration oversight will be handled by the New York Department of Financial Services, which is expected to publish additional guidance and supervise compliance once the program becomes operational.
Can Multiple Funders Agree to Provide Funding to a Client?
Yes, on certain conditions. The Act does permit multiple funding companies to participate in the same case when the arrangement is approved in writing by the consumer, the consumer’s attorney, and the funding companies involved.[1] This exception allows coordinated funding arrangements while maintaining transparency and helping prevent situations where a consumer unknowingly takes on overlapping obligations.
What Are Funders Required to Disclose Under New York’s Litigation Funding Act?
The Consumer Litigation Funding Act requires litigation funding agreements to include clear disclosures, so consumers understand the terms of the transaction before accepting funding.
Key disclosures include:[1]
- The amount being advanced to the consumer
- All fees, charges, and how those charges accrue
- Payment schedules and repayment terms
- The consumer’s right to cancel the agreement within ten business days
- The maximum amount that may be repaid under the agreement
- A statement that repayment is limited to proceeds recovered from the legal claim
- A disclosure that the funding company has no authority to direct litigation strategy or settlement decisions
These disclosure requirements apply to consumer litigation funding agreements themselves and are intended to ensure consumers have the information they need to make informed decisions before entering into a funding arrangement.
At the same time, the law recognizes confidentiality concerns. While funding agreements must contain these disclosures, the Act preserves protections for privileged communications and attorney work product. This framework is intended to balance transparency regarding funding arrangements with the need to protect sensitive legal strategy and confidential attorney-client communications.
What Are the Consequences to a Funder Who Violates the Statute?
If a company is found to have willfully violated the statute in connection with a specific funding transaction, it waives its right to recover charges associated with that transaction and may be subject to civil penalties up to $5,000 per violation. The Attorney General can also pursue separate claims where appropriate, for example, for unfair business practices or false advertising.[1]
Do Funders Have to Register?
Yes. Under the new law, consumer litigation funding companies will have to register with the New York Department of Financial Services (NY DFS). The registration process requires companies to submit an application and provide information that may be required by the regulator. Companies will also be subject to annual reporting requirements.[1]
The New York Department of Financial Services is currently developing the regulations and procedures that will govern registration. Those regulations are not expected until later this year.
What Are Attorneys’ Obligations Under the New Statute?
Do Funders Have to Register?
How Can I Verify If a Funder Is Licensed?
The process for verifying whether a consumer litigation funding company is registered has not yet been announced. Registration oversight will be handled by the New York Department of Financial Services, which is expected to publish additional guidance and supervise compliance once the program becomes operational.
Can Multiple Funders Agree to Provide Funding to a Client?
Yes, on certain conditions. The Act does permit multiple funding companies to participate in the same case when the arrangement is approved in writing by the consumer, the consumer’s attorney, and the funding companies involved.[1] This exception allows coordinated funding arrangements while maintaining transparency and helping prevent situations where a consumer unknowingly takes on overlapping obligations.
What Are Funders Required to Disclose Under New York’s Litigation Funding Act?
The Consumer Litigation Funding Act requires litigation funding agreements to include clear disclosures, so consumers understand the terms of the transaction before accepting funding.
Key disclosures include:[1]
- The amount being advanced to the consumer
- All fees, charges, and how those charges accrue
- Payment schedules and repayment terms
- The consumer’s right to cancel the agreement within ten business days
- The maximum amount that may be repaid under the agreement
- A statement that repayment is limited to proceeds recovered from the legal claim
- A disclosure that the funding company has no authority to direct litigation strategy or settlement decisions
These disclosure requirements apply to consumer litigation funding agreements themselves and are intended to ensure consumers have the information they need to make informed decisions before entering into a funding arrangement.
At the same time, the law recognizes confidentiality concerns. While funding agreements must contain these disclosures, the Act preserves protections for privileged communications and attorney work product. This framework is intended to balance transparency regarding funding arrangements with the need to protect sensitive legal strategy and confidential attorney-client communications.
What Are the Consequences to a Funder Who Violates the Statute?
If a company is found to have willfully violated the statute in connection with a specific funding transaction, it waives its right to recover charges associated with that transaction and may be subject to civil penalties up to $5,000 per violation. The Attorney General can also pursue separate claims where appropriate, for example, for unfair business practices or false advertising.[1]
Consumer Protections
How Does the NY Consumer Litigation Funding Act Protect Consumers?
The main purpose of New York’s Consumer Litigation Funding Act is to promote transparency and help prevent abusive or predatory practices. The law creates several safeguards that consumers and their attorneys should understand before entering into a litigation funding agreement, outlined below.
Right to recission. Consumers will have ten business days after receiving funds to cancel the contract without penalty, provided they return the full funded amount. This gives them time to review the transaction and reconsider their decision.[1]
Cap on charges. The amount that a funding company may collect cannot exceed the funded amount plus 25% of the gross proceeds recovered from the legal claim. The law requires attorneys to disclose the gross settlement amount so compliance with the cap can be verified.[4]
Multiple funders protection and prevention. The statute prohibits a funding company from providing funding when another funding company already has an unsatisfied interest in the same claim, unless the prior obligation is first paid off. The law does allow multiple companies to fund the same case simultaneously when the consumer, attorney, and funding companies all consent in writing.[1]
Registration. Funding companies must apply for registration with the New York Department of Financial Services by February 2028. Additional regulations outlining what information will need to be provided will be issued prior to that date. [1]
Contract disclosures. Funding companies must also explain how charges accrue and provide consumers with clear information on:
- Funded amount
- Fees and charges
- Payment schedules
- Cancellation rights,
- Maximum repayment obligations.[1]
Rates & Caps
What Caps Does the Statute Enforce?
The Act provides that the maximum amount that a funding company may collect cannot exceed the funded amount plus 25% of the gross settlement amount. The law does not establish a specific interest-rate cap or mandate a particular pricing structure.[1]
Is There a Cap on the Rate That Funders Can Charge?
No. The Act does not establish a cap or limit on interest rates or fees charged. Instead, the law limits the amount that funders can collect above the funded amount to no more than 25% of the gross proceeds from the claim, subject to the statutory requirements.[1]
Does the Act Restrict the Types of Interest That Funding Companies Can Charge?
No. The Act does not restrict whether a funding company uses simple interest, compound interest, or another pricing methodology.
For that reason, consumers and attorneys should carefully review the terms of any funding agreement and understand how charges accrue over time.
Will USClaims Continue to Offer a 2X Cap?
Yes. USClaims intends to continue offering a 2X cap for most case types.** For cases that are expected to remain unresolved for a longer period of time, the cap will not exceed 3x the funded amount.
Why does a contractual cap remain valuable when the Act already limits the amount that may be collected? The answer is that the two protections can work together. If the statutory limitation would otherwise allow recovery above the contractual cap, the consumer still receives the benefit of the lower contractual limitation.
For example, if applying the Act’s collection cap cap would permit a recovery amount greater than two times the funded amount, USClaims’ contractual cap would still limit repayment to two times the amount funded. As a result, consumers may benefit from both the protections provided by New York law and USClaims’ funding terms.
*Funding subject to approval. We typically fund within 24 business-day hours after we receive a fully executed contract. Additional restrictions may apply. Contact for details.
**2X CAP may not be applicable for all types of cases and/or jurisdictions.
Disclaimer
Throughout this website, the term “loan” may be used for convenience to describe litigation funding. However, most of our transactions are not loans in the legal sense; we only extend loans in some limited jurisdictions. Common terms like “lawsuit loan” are used colloquially but misrepresent the nature of litigation funding.
Sources
- New York State Senate, “A9442 – Consumer Litigation Funding Act,” https://www.nysenate.gov/legislation/bills/2025/A9442
