Consumer protection should not be a red-state issue or a blue-state issue. When an injured consumer is struggling to pay rent, keep the utilities on, buy groceries, or make a car payment while waiting for a legal claim to be resolved, political affiliation is irrelevant. The question for policymakers should be straightforward: How do we protect consumers while preserving their ability to access financial assistance when they need it most? Recent Consumer Legal Funding laws enacted in states as politically different as Kansas, Utah, California, and New York demonstrate that those objectives are not mutually exclusive. Strong consumer protections and meaningful access can coexist, and increasingly, states across the political spectrum are proving it.
Consumer Legal Funding also has a consumer-protection safeguard that distinguishes it from many other financial transactions: the consumer already has an attorney.
A consumer seeking Consumer Legal Funding has a pending legal claim and is represented by counsel. That attorney owes professional duties directly to the consumer, including the duties to exercise independent judgment, provide candid legal advice, and protect the client’s interests.
The attorney does not make the financial decision for the consumer. The consumer remains in control. But the attorney can review required disclosures, explain the transaction, and help the consumer understand the contractual obligations before making an informed decision.
Recent legislation has strengthened that existing framework through clearer disclosures, cancellation rights, attorney acknowledgments, conflict-of-interest restrictions, prohibitions against funding-company control, and meaningful enforcement.
Protection Begins With the Product
Consumer Legal Funding is a non-recourse transaction. The funding company purchases a contingent right to receive a portion of the potential proceeds from a consumer’s legal claim. Repayment depends upon the existence of proceeds from that claim.
Kansas HB 2518 expressly defines Consumer Legal Funding as a non-recourse transaction and distinguishes it from financing litigation by specifying that the funds are used for household or personal expenses rather than expenses directly related to prosecuting the legal claim.
This distinction is critical.
Consumer Legal Funding exists because household expenses do not stop when someone is injured. Rent, mortgage payments, utilities, groceries, and transportation costs continue even when a legal claim takes months or years to resolve.
For many consumers, the practical alternative to obtaining funding may be falling behind financially or facing pressure to resolve a legal claim before they otherwise would.
The appropriate policy objective should therefore be to ensure that consumers who need this financial assistance can obtain it within a responsible, transparent, and regulated marketplace.
Transparency Before the Consumer Signs
Modern Consumer Legal Funding laws increasingly require consumers to receive detailed information before entering a transaction.
Kansas requires agreements to use common, everyday language and to be completely filled in before the consumer signs. The agreement must disclose charges, the maximum amount the consumer may ultimately owe, and how the contractual obligation changes over time.
California and New York impose similar disclosure requirements, including information about the funded amount, charges, and maximum contractual obligation. New York requires contracts to use common, understandable language and provide a repayment schedule.
The principle is simple: disclosure should not merely exist. It should be understandable.
Consumers are also given time to reconsider their decision. Kansas and New York provide a 10-business-day cancellation period.
Utah HB 280 strengthened its consumer protections by expanding its rescission period from five business days to 10. California provides a five-business-day rescission period.
These protections allow consumers to reconsider the transaction, discuss it further with counsel, and return the funds within the statutory period without additional financial consequence.
The Attorney as a Consumer-Protection Safeguard
Perhaps the most overlooked protection is the formal role of the consumer’s attorney.
Kansas requires an attorney acknowledgment confirming that counsel reviewed the mandatory disclosures with the consumer, that proceeds will be handled through the attorney’s trust account or an appropriate settlement fund, and that the attorney has not received a referral fee from the funding company. Without the required attorney acknowledgment, the contract is null and void.
California has adopted a similar structure. The attorney must acknowledge reviewing the disclosures, confirm the handling of claim proceeds, and affirm that no referral compensation has been or will be received. The absence of that acknowledgment also renders the transaction and contract null and void.
New York likewise requires attorney acknowledgment that mandatory disclosures were reviewed with the consumer and that the attorney has not received or been promised referral compensation.
This adds something that a disclosure form alone cannot provide.
A disclosure tells the consumer what the contract says. An independent attorney can help the consumer understand what it means.
The Consumer Controls the Claim
The legislation also reinforces one of the most important distinctions in Consumer Legal Funding: the funding company does not control the underlying legal claim.
Kansas prohibits funding companies from influencing or making decisions concerning the conduct, settlement, or resolution of the claim.
California similarly prohibits funding companies from obtaining decision-making rights over the conduct or resolution of a claim. New York provides that decisions concerning the underlying claim remain solely with the consumer and attorney. Utah likewise prohibits a funding provider from influencing decisions involving the conduct, settlement, or resolution of the legal action.
Across four very different states, the principle is remarkably consistent:
- The funding company provides the funds.
- The attorney provides the legal representation.
- The consumer controls the claim.
The laws also protect attorney independence. Kansas, Utah, California and New York restrict referral compensation and financial relationships between attorneys and funding companies. These safeguards are designed to ensure that the attorney’s professional loyalty remains where it belongs, with the client.
Consumer Protections With Enforcement Behind Them
Consumer protection requires more than contractual language. There must also be consequences for violations.
Kansas authorizes civil penalties of up to $10,000 per willful violation and can prohibit a funding company from recovering both the funded amount and contractual charges.
California provides statutory damages, attorney’s fees, and injunctive or declaratory relief for prohibited conduct.
New York allows a company committing a willful violation to lose its right to recover both the funded amount and charges and provides for enforcement by the Attorney General. Utah requires registration, renewal, and annual reporting to its Division of Consumer Protection.
The specific regulatory approaches differ, but the objective is the same: protect the consumer while preserving access to the product.
Consumer Protection Should Not Be Partisan
That may be the most important lesson from these laws.
Kansas and Utah are generally considered red states. California and New York are among the nation’s best-known blue states. Their legislatures frequently approach public policy from very different perspectives.
Yet when it comes to Consumer Legal Funding, they have embraced many of the same basic principles: transparency, understandable contracts, cancellation rights, attorney involvement, attorney independence, consumer control, and regulatory enforcement.
That common ground matters.
An injured consumer worried about making next month’s rent payment is not facing a Republican problem or a Democratic problem. A family struggling to keep the electricity on while a claim remains unresolved does not need a partisan solution. They need access to responsible financial assistance, accompanied by meaningful protections.
The policy debate should therefore not be framed as a choice between access and consumer protection.
Responsible regulation can provide both.
States across the political spectrum are demonstrating that Consumer Legal Funding can operate within a framework that protects consumers without eliminating an option that may help them withstand the financial pressures created while their legal claims are pending.
That is where policymakers should find common ground.
Consumer protection should not be partisan. Neither should ensuring that people facing financial hardship have access to responsible assistance when they need it most.
