Kathy Hochul has signed New York’s Consumer Litigation Funding Act, a measure supporters say reins in predatory third-party litigation funding and adds safeguards that could help slow rising insurance costs. The law was signed on Dec. 19.
The legislation requires third-party litigation funders to register with the state and provide clear disclosures to consumers, including details on fees and repayment obligations.
It also bars funders from steering legal strategy or interfering with attorney decision-making. Control stays with plaintiffs and their counsel. That line is now explicit.
The law caps total charges at 25% of a plaintiff’s gross recovery and gives consumers a 10-day window to cancel a funding agreement without penalty. Supporters frame the provisions as basic consumer protection rather than market disruption.
The Professional Insurance Agents of New York said the law adds long-missing accountability to an industry it argues inflates settlement demands, drags out litigation, and drives up claim severity.
Those costs, the group says, flow straight through to policyholders.
New York has formally pulled third-party litigation funding into its regulatory perimeter under Assembly Bill A804-C/S.1104A, ending years of light-touch oversight and placing the industry squarely under the state’s General Business Law.
The statute treats consumer litigation funding as a regulated commercial activity rather than a contractual gray zone.
The law defines a consumer litigation funding transaction as a non-recourse arrangement in which a funder purchases a contingent right to a share of a claimant’s recovery.
Payment depends entirely on whether the consumer ultimately receives proceeds from a settlement or judgment. No recovery, no repayment.
Contract standards now come first. Funding agreements must give consumers a clear right to rescind within a defined cooling-off period, with no penalty attached.
Documents must use conspicuous type, and consumers must initial every page. Before signing, funders must disclose the full advance amount and all associated charges. No surprises after the fact.
PIANY called the move a pragmatic step that protects consumers while easing pressure on the insurance market. Still, the group says the job isn’t finished. It wants lawmakers to require disclosure of litigation funding agreements during active cases, a transparency measure it views as critical. Hochul has indicated openness to a future amendment addressing that gap.
Concerns about litigation funding extend beyond New York. The American Property Casualty Insurance Association has argued that third-party funding and other legal system abuses impose a hidden “tort tax” exceeding $5,000 per U.S. household.
Whether the new law bends that curve remains to be seen.
The statute also draws a bright line around legal control. Funders may not interfere with litigation strategy, influence settlement decisions, demand waivers of consumer rights, or make payments to attorneys or medical providers tied to the funding deal.
Attorneys representing funded plaintiffs are barred from holding any financial interest in the funding company. Independence matters here.
Cost containment sits at the center of the framework. Total funder charges are capped at 25% of a claim’s gross recovery, regardless of the size of the advance. Prepayment penalties are unenforceable.
The ceiling applies once recovery occurs, full stop.
All consumer litigation funding companies must register with the state and submit annual reports. The law spells out licensing and disclosure obligations intended to replace opaque arrangements that critics say leave plaintiffs unclear on what they actually owe once a case resolves.
Supporters argue the statute balances access and protection. Funding can help plaintiffs cover living expenses, medical bills, or legal costs while a case drags on.
Without guardrails, proponents say, consumers may feel forced to accept low settlements just to stay afloat. With rules in place, the goal is cash flow without coercion.
According to Beinsure, New York’s framework could serve as a template for other states weighing how far to go in regulating litigation finance. Caps and disclosure rules tend to draw industry pushback. Insurance groups, for now, see momentum.
