Litigation funding is a financial arrangement in which a company provides money to a consumer who is a plaintiff in a lawsuit in exchange for the consumer’s agreement to pay the company a portion of any monetary court award or settlement the consumer receives as a result of the lawsuit.

Litigation Funding in New York

In New York, the Litigation Funding Act requires that anyone who provides litigation funding to New Yorkers in amounts up to $500,000 must register with DFS and comply with certain consumer protection requirements effective June 17, 2026.

• Registration and Reporting Information for Litigation Funding Companies

• There are strict limits on how much you can owe. There are strict limits on how much you can owe. A litigation funding company cannot require you to pay an amount that is more than 25% of your claim proceeds plus the amount of the funding. In addition, you cannot be required to pay more than the amount of the proceeds from your court award or settlement from your case. If you do not receive any monetary court award or settlement, you won’t owe anything to the company. However, it is important to read your contract carefully. If you violate the terms of your contract or commit fraud against the litigation funding company, you may be liable for damages.
• The litigation funding company cannot control your lawsuit. The company cannot influence your legal strategy, settlement decisions, or how your claim is resolved. Your attorney must act in your interests, not the company’s. The company also cannot pay your attorney’s fees, court costs, or filing fees with the funds.
• You should receive a contract written in clear, plain language. The contract must disclose all of the payment terms, charges, and obligations. 
• You have the right to cancel the contract within 10 business days after receiving the funding, without penalty or further obligation, as long as you return all of the money that you received.

Under the Litigation Funding Act:

• You are entitled to receive a litigation funding contract written in plain language, in legible text.

• The contract must be complete before it is given to you to sign. Terms may not be left to be determined later.

• The litigation funding company must provide you and your attorney each a copy of the signed contract.

You have the right to cancel the agreement within 10 business days after receiving the funding, without penalty or further obligation, as long as you return all of the money you have received.

The contract must also disclose all of the payment terms, charges, and obligations, including:

• the amount of money you are getting,

• all of the fees and charges,

• a payment schedule showing examples of payment and charge amounts based on different possible outcomes of your legal claim,

• the maximum amount you may be required to pay,

• that you are responsible for paying only the charges specifically listed in the contract,

• how and when you must make payments to the company, including in cases where the proceeds from your claim will be paid to you over time instead of all at once,

• that the proceeds may have tax implications, and

• the total amount you will owe if you enter into more than one litigation funding agreement with the same company. Even if you have more than one agreement, the law prohibits a litigation company from holding a financial interest that would allow it to recover more than the funded amount plus 25% of the claim’s gross proceeds from you.

The contract must also include a written statement from your attorney for the legal claim confirming:

• that your attorney reviewed the required disclosures with you,

• that your attorney will ensure that any settlement or claim proceeds are paid through the retained attorney’s trust account or another settlement account established for you to receive the proceeds,

• that your attorney has an obligation to take reasonable steps to distribute funds properly and help ensure the contract terms are fulfilled,

• that your attorney has not received, and will not receive, any referral fee or other payment from the litigation funding company related to the funding transaction,

• that your attorney has not provided tax advice, public benefits advice, financial planning advice, or other financial advice related to the litigation funding transaction.

Litigation funding companies cannot: 

• charge or collect prepayment penalties or fees from you,
• pay, or offer to pay, your court costs, filing fees, or attorney’s fees using funding money, either during the case or after it is resolved,
• require you to pay more than the funded amount plus 25% of the gross proceeds of the legal claim,
• require you to pay more money than is actually available from the proceeds of the legal claim,
• refer you to a specific attorney, law firm, medical provider, chiropractor or physical therapist or any of their employees (they are allowed to refer you to a local or state bar association referral service if you need an attorney),
• make statements in advertising that are materially false or misleading about their products or services,
• knowingly provide funding if you already have a litigation funding agreement with a different company for the same legal claim (except under limited circumstances),
• influence, or attempt to influence, how your legal claim is handled, settled, or resolved,
• require you to waive your legal rights or remedies, including the right to a trial by jury,
• require your attorney to disclose privileged or confidential information unless you give written consent to do so. Your attorney is required to disclose the amount of the legal proceeds to the litigation funding company,
• enter into a funding contract if your attorney or law firm has a financial interest in the litigation funding company and the company knows about that interest, or
• enter into a funding agreement if it has a reasonable basis to believe the legal claim is frivolous, based on false facts, or otherwise lacks merit.

Note:

• The company is permitted to ask about the status of the claim.
• You and your attorney must notify the company about the outcome of the legal claim before proceeds are distributed.

You are only responsible for paying the charges specifically listed in the contract.

A litigation funding company can only require payment after all of the following have happened:

• your legal claim has reached a final resolution

• any appeals related to your claim have been completed

• your attorney has actually received the money from the settlement, judgment, award, or verdict

And remember, if you don't receive any monetary court award or settlement, you won’t owe anything to the company, but it's important to read your contract carefully. If you violate the terms of your contract or commit fraud against the litigation funding company, you may be liable for damages.