Establishes that consumer litigation funding transactions should be subject to state regulation and sets forth requirements regarding disclosure, licensing, funding company and attorney responsibilities and limitations, violations and other provisions.
This bill would create a new Article 39-H of the General Business Law to regulate “consumer litigation funding” in New York. It defines consumer litigation funding as a non-recourse transaction in which a consumer assigns a contingent right to a portion of the proceeds from a legal claim in exchange for money up front. The bill sets out detailed contract requirements, including plain-language drafting, itemized disclosures, a five-business-day right of rescission, attorney acknowledgements, and prominent warnings that repayment comes only from claim proceeds unless there is fraud or a material breach.
The bill also imposes substantive limits on funding companies and attorneys. It prohibits referral fees and commissions to or from attorneys and certain medical providers, bars funders from directing litigation strategy or settlement decisions, requires that repayment amounts be predetermined rather than tied to a percentage of recovery, and mandates registration with the Department of State. Funders would also have to file contracts, post a bond or letter of credit in some cases, and submit annual reports to the Department of Financial Services. The bill expressly states that compliant transactions are not loans and are not governed by loan laws, and it preserves attorney-client privilege for communications related to the funding arrangement.
If enacted, the bill would add a new regulatory framework to the General Business Law governing consumer litigation funding companies operating in New York. It would require licensing/registration, contract filing, disclosures, reporting, and compliance with conduct restrictions, while giving the Department of State and Department of Financial Services oversight roles. It would also affect consumers with pending civil claims, their attorneys, and litigation funding companies by standardizing contract terms and limiting fees, referrals, and control over legal claims. The bill applies prospectively and does not affect funding agreements entered into before its effective date.
The bill’s stated purpose and structure suggest a consumer-protection approach, with the Legislature seeking to bring an emerging financial product under state oversight and reduce the risk of abusive or opaque terms. The available context includes no committee transcript or vote record, so there is no documented floor or committee sentiment to assess beyond the bill text itself. On its face, the proposal appears generally favorable to consumers and to transparency in litigation financing, while also preserving the ability of the market to operate under regulated conditions.
The main points of contention likely concern the balance between consumer access to litigation funding and the bill’s restrictions on pricing, attorney relationships, and funder involvement in cases. Funding companies may object to the registration requirements, bond/letter-of-credit provisions, reporting obligations, and the prohibition on percentage-based repayment, while consumer advocates may support those same provisions as safeguards against excessive charges and conflicts of interest. The bill also raises issues for attorneys, who must provide acknowledgements and avoid financial ties or referral arrangements with funders, and for consumers who may rely on this financing while awaiting resolution of a claim.