The New York Consumer Litigation Funding Act: What You Need to Know

On December 22, 2025, Governor Kathy Hochul signed the Consumer Litigation Funding Act (NY State Senate Bill 2025-S1104A), to go into effect on June 17, 2026. The new legislation is aimed at regulating the litigation funding industry in New York. The law is aimed at reforms that will create transparency and consumer protection in the litigation funding industry.

What is Consumer Litigation Funding?

Consumer litigation funding involves third party lenders advancing plaintiffs funds to sustain the plaintiff during the course of the litigation. Repayment is normally conditioned on the plaintiff's successful recovery in the underlying litigation, and plaintiff would be obligated to pay back the initial advance plus interest. Until the Consumer Litigation Funding Act was signed, the advances were treated as investments instead of loans, so the advances were not restricted by lending laws or interest rate caps.

Key Provisions of the New York CLFA

The New York Consumer Litigation Funding Act (CLFA) requires that litigation funding entities register with New York State and file annual reports and requires that any contracts with litigation funding entities include clear disclosures of repayment amounts, repayment terms, and the plaintiff's rights. The CLFA also prohibits litigation funding entities from influencing litigation strategy, settlement decisions, or attorney-client communications. Additionally, attorneys are now barred from accepting referral fees or maintaining a financial interest in litigation funding entities.

The Impact on Plaintiffs Seeking Litigation Funding

Advocates insist that this legislation will empower plaintiffs seeking litigation funding to make informed decisions as to what they are contracting to and reach better agreements, where previously they had little to no bargaining power with respect to the litigation funding agreement, and little knowledge about what they were actually contracting to when reading the opaque contracts drafted by litigation funding entities.

Some argue that there are potential drawbacks that have been left unaddressed by the law. One such potential drawback is that the burden of increased regulations created by the CLFA may reduce the availability of funding, and by extension reduce plaintiffs' ability to sustain themselves while pursuing a claim. Another potential issue that may arise is that litigation funding companies to abandon the market, decreasing competition between litigation funders, and reducing the number of options potential plaintiffs have to pursue litigation.