New York’s New Litigation Funding Law: What It Means for Personal Injury Claimants

Imagine facing mounting medical bills and lost wages after an injury, all while navigating a complex legal battle. For many New Yorkers, this is a harsh reality. Fortunately, a new law has emerged to offer a potential lifeline: litigation funding. But what exactly is litigation funding, and how does New York’s new law impact personal injury claimants?

What is Litigation Funding?

Litigation funding, also known as lawsuit funding or pre-settlement funding, is a financial arrangement where a third-party provides a cash advance to plaintiffs involved in a lawsuit in exchange for a portion of the potential settlement or judgment. This funding can be used to cover essential living expenses, medical bills, and attorney fees while the case is pending. Unlike a traditional loan, litigation funding is typically non-recourse, meaning the plaintiff is only required to repay the advance if they win their case. If they lose, they owe nothing.

The Rise of Litigation Funding

Litigation funding has become increasingly popular in recent years, with the global market projected to reach \$4.12 billion by 2027. This growth is driven by the increasing costs of litigation and the financial strain faced by many plaintiffs awaiting settlement.

New York’s New Consumer Litigation Funding Act

On December 19, 2025, New York Governor Kathy Hochul signed into law the Consumer Litigation Funding Act (Assembly Bill A804-C/Senate Bill S.1104A), marking a significant step towards regulating the litigation funding industry in the state. The law, which takes effect 180 days later in June 2026, aims to protect consumers while preserving access to this vital financial resource.

Key Provisions of the New Law

The Consumer Litigation Funding Act introduces several key consumer safeguards:

Registration and Reporting: All litigation funding companies must register with the State of New York, file annual reports, and meet bonding and disclosure requirements.
Clear Contract Disclosures: All terms, charges, and cumulative repayment amounts must be plainly stated and initialed by the consumer.
Cap on Total Charges: The law caps total charges at 25% of a plaintiff’s gross recovery.
Right of Rescission: Consumers have a 10-day window to cancel a funding agreement without penalty.
No Interference: Funders are prohibited from steering legal strategy or interfering with attorney decision-making.
Plain Language Contracts: All litigation funding contracts must be written in plain language.

What This Means for Personal Injury Claimants

For personal injury claimants in New York, the new law offers several potential benefits:

Financial Stability: Litigation funding can provide a financial lifeline to cover essential expenses while a legal claim is pending, preventing injured consumers from being forced into early or unfair settlements.
Leveling the Playing Field: By providing access to financial resources, litigation funding can help plaintiffs afford the best attorneys and experts, strengthening their case and increasing their chances of a fair settlement.
Protection from Predatory Practices: The new law’s regulations and disclosures aim to protect consumers from exorbitant fees and misleading contract terms, ensuring they are fully aware of the costs and obligations involved in litigation funding.

Navigating the Litigation Funding Landscape

While the new law offers increased protection, it’s crucial for personal injury claimants to approach litigation funding with caution and seek professional guidance. Here’s some advice:

Consult with Your Attorney: Discuss the potential benefits and risks of litigation funding with your attorney. They can help you evaluate whether it’s the right option for your specific situation and ensure that the funding agreement doesn’t compromise your legal strategy.
Understand the Terms: Carefully review the funding agreement and ensure you understand all the terms, charges, and repayment obligations. Don’t hesitate to ask questions and seek clarification on any unclear provisions.
Consider Alternatives: Explore other financial options, such as personal loans or lines of credit, to determine if they offer more favorable terms than litigation funding.
Choose a Reputable Funder: Select a litigation funding company with a proven track record of ethical and transparent practices. Look for companies that are members of industry associations like the American Legal Finance Association (ALFA), which promotes responsible funding practices.

Potential Risks and Considerations

Despite the benefits, it’s essential to be aware of the potential risks associated with litigation funding:

High Costs: Litigation funding can be expensive, with interest rates and fees that can significantly reduce the final settlement amount.
Impact on Settlement: The obligation to repay the funding advance can put pressure on plaintiffs to settle for a lower amount than they might otherwise be entitled to.
Loss of Control: While the new law prohibits funders from interfering with legal strategy, some critics argue that the funder’s financial interest can still influence decision-making.

The Future of Litigation Funding in New York

New York’s new Consumer Litigation Funding Act represents a significant step towards creating a fair and transparent market for litigation funding. By regulating the industry and protecting consumers, the law aims to ensure that this financial resource remains a valuable tool for personal injury claimants seeking justice. As the law takes effect and the industry adapts, it will be crucial to monitor its impact on settlement outcomes, access to justice, and the overall legal landscape in New York.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Consult with an attorney to discuss your specific legal situation.