New York plaintiffs have long been able to obtain cash advances from third-party litigation funding companies in exchange for a share of any future recovery. The arrangement sounds straightforward, but the details are not. Funders tend to operate without disclosure obligations and without a cap on what they could charge. These third parties are in the background of plaintiff’s cases, not to be seen, operating as a silent and likely influential party in New York personal injury litigation. That era of opacity is now ending. On December 19, 2025, Governor Kathy Hochul signed the Consumer Litigation Funding Act into law, establishing New York’s first comprehensive regulatory framework for consumer litigation funding transactions.[1] The Act takes effect on June 17, 2026, and it applies to agreements executed on or after that date.[2]

What the Act Does

The Act adds Article 39-H to the General Business Law.[3] The Act defines “[c]onsumer litigation funding…[as] a non-recourse transaction in which a company purchases” a consumer’s “contingent right to receive a portion of the proceeds of any settlement, judgment, award, or verdict obtained…”[4] If there is no recovery, the consumer owes nothing.

Repayment of fees must now be scheduled in predetermined installments rather than as a percentage of the consumer’s recovery.[5] Provided the consumer discloses the amount of the gross recovery on the underlying claim, the Act limits the total of all repayments to 25% of that amount.[6] These limitations represent a direct legislative response to fee structures that have allowed funders to take the majority of a plaintiff’s recovery, which has hindered settlement negotiations because demands often exceed fair value in order to offset the funder’s fee.

The Act provides for multiple consumer protections. Contracts must be written in plain, clear language and include mandatory disclosures.[7] The Act also grants consumers the right to cancel without penalty within ten business days.[8] The funding agreement must include a repayment schedule from the date of funding until the maximum amount is repaid, specifying the charges due at the completion of each 180-day interval.[9]

Funders must register with the New York Department of State, submit to character and fitness review, and post a bond before doing business in the state.[10] The registration requirement creates a public record of authorized funders, which should provide clarity as to the identity of the funders and likely remove bad actors who have taken advantage of the prior regulation-free system.

The Act also imposes affirmative prohibitions. Funding companies may not receive compensation for making referrals to attorneys or medical providers, refer consumers to specific attorneys or medical providers, or direct or control the consumer’s litigation strategy or settlement decisions.[11] A funder found to have willfully violated any provision of the Act forfeits both the funded amount and all charges in the affected case and faces civil penalties of up to $5,000 per violation, recoverable in an action by the New York Attorney General.[12]

Judicial Background

New York courts have increasingly confronted litigation funding as a substantive issue in active cases, and the results have not been favorable to funders who assumed anonymity. In Lituma v. Liberty Coca-Cola Beverages LLC, the First Department of the Appellate Division affirmed a trial court order vacating a note of issue and opening discovery into the plaintiffs’ third-party funding arrangements.[13] The defendants presented evidence linking the plaintiffs to a network of suspected staged accidents. The court found that funding information was “material and necessary” to the defense, holding that a funder’s financial relationship to a plaintiff’s claim could establish a motive to fabricate or inflate.[14] The decision applied the broad disclosure standard in the Civil Practice Law and Rules and reinforced that funding arrangements are not insulated from discovery.

The Act and the aforementioned appellate decision pull back the curtain on litigation funding by requiring transparency before litigation begins. The appellate decision confirms courts can compel disclosure once litigation is underway.

What This Means in Practice

For defense counsel, the practical consequences of the Act are likely to be felt at settlement. A funding structure structures repayment on at least 180-day intervals and caps repayment at 25% of gross proceeds removes the incentive for funders to encourage plaintiffs to reject reasonable settlement offers. A funder which directs litigation strategy or pressures a plaintiff to reject reasonable settlement risks forfeiting all rights to repayment.

Defense counsel who encounter funding arrangements in cases governed by the Act should examine the underlying contract carefully for compliance. A funder’s willful violations carry consequences that could materially affect the plaintiff’s recovery and the parameters for settlement.

Takeaway

New York’s Consumer Litigation Funding Act is one of the more consequential pieces of civil litigation legislation enacted in recent years. By capping charges, requiring registration, mandating disclosures, and prohibiting funder control of legal strategy, the Act restructures the economics and ethics of third-party litigation funding in the state. Whether the Act meaningfully reduces inflated demands in high-stakes litigation will depend on enforcement and judicial interpretation of the Act’s limits. Defense counsel should familiarize themselves with its provisions now, given the effective date is on the horizon.

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Sources

[1] New York Regulates Consumer Litigation Financing, Insurance Journal (Jan. 7, 2026), https://www.insurancejournal.com/news/east/2026/01/07/853304.htm.

[2] Id.

[3] N.Y. Gen. Bus. Law §§ 899-ccc to 899-mmm.

[4] N.Y. Gen. Bus. Law § 899-ccc(3).

[5] N.Y. Gen. Bus. Law § 899-fff.

[6] N.Y. Gen. Bus. Law § 899-eee(h)(5).

[7] N.Y. Gen. Bus. Law §§ 899-ddd, 899-ggg.

[8] N.Y. Gen. Bus. Law § 899-ddd(c).

[9] N.Y. Gen. Bus. Law § 899-ggg.

[10] N.Y. Gen. Bus. Law § 899-kkk.

[11] N.Y. Gen. Bus. Law § 899-eee.

[12] N.Y. Gen. Bus. Law § 899-hhh.

[13] Lituma v. Liberty Coca-Cola Beverages LLC, 243 AD3d 504 [1st Dept 2025].

[14] Id.