One of the greatest obstacles to thoughtful public policy is imprecise terminology. Few issues illustrate that better than the ongoing debate over litigation funding.

Today, nearly every discussion of "litigation funding" treats vastly different financial products as though they are interchangeable. Consumer Legal Funding (CLF), commercial third-party litigation financing (TPLF), attorney portfolio financing, and large-scale investment funds are routinely grouped under a single label. That may make for convenient rhetoric, but it makes for poor public policy.

The result is that legislation intended to regulate hedge fund investment in billion-dollar commercial lawsuits often sweeps in an entirely different product that exists for one reason: helping injured consumers pay their everyday bills while they wait for the civil justice system to work.

Consumer Legal Funding is not third-party litigation financing. It does not finance lawsuits, influence litigation strategy, or fuel so-called "lawsuit abuse." It is a consumer financial product designed to provide temporary, non-recourse funding for people who have already suffered an injury and are struggling to make ends meet.

When someone suffers a serious injury because of another person's negligence, life does not stop while the legal system works.

Rent is still due.

Mortgage payments still arrive every month.

Utilities must be paid.

Children still need food.

Cars still require insurance and fuel.

Prescription medications cannot wait for a settlement.

Yet many injured consumers cannot work because of their injuries. Some exhaust their savings within weeks. Others have poor credit or cannot qualify for traditional financing because they have lost their income.

Consumer Legal Funding helps bridge that gap.

The average Consumer Legal Funding transaction is only about $3,000 to $5,000. That amount is insignificant when compared with the cost of complex litigation, but it can make the difference between keeping a family housed or facing eviction.

Importantly, these funds are not intended to finance litigation. They are used for ordinary household expenses such as rent, groceries, mortgage payments, utilities, transportation, childcare, and medical bills. Attorneys' fees, expert witnesses, depositions, and litigation costs remain the responsibility of the attorney handling the case, not the funding company.

Simply put, Consumer Legal Funding helps families survive—not lawsuits succeed.

The Lawsuit Already Exists

A common criticism is that Consumer Legal Funding somehow encourages litigation.

That argument misunderstands how the product works.

Before a Consumer Legal Funding company will even evaluate an application, the consumer must already have suffered an injury, retained legal counsel, and filed or be pursuing a legal claim.

The lawsuit already exists.

The accident has already happened.

The alleged negligence has already occurred.

Consumer Legal Funding enters only after those events have taken place.

Whether funding is approved has absolutely no bearing on whether litigation is filed. It merely provides temporary financial support while the legal process unfolds.

Consumer Legal Funding Is Not a Loan

Perhaps the greatest misunderstanding surrounding Consumer Legal Funding is the claim that it should be treated as a traditional loan.

It is not.

Unlike a bank loan, a credit card, or a personal line of credit, Consumer Legal Funding is non-recourse. Repayment depends entirely upon the consumer obtaining a successful recovery.

If the consumer receives nothing, the funding company receives nothing.

There are no monthly payments.

There is no wage garnishment.

There are no collection actions against the consumer.

There is no personal liability.

That distinction has been recognized repeatedly by courts.

In Maslowski v. Prospect Funding Partners LLC, the Minnesota Supreme Court held that a non-recourse Consumer Legal Funding agreement was not a loan subject to Minnesota's usury laws because repayment depended entirely upon the consumer recovering money in the underlying legal claim. Without an unconditional obligation to repay, the agreement lacked one of the defining characteristics of debt.

Likewise, in Ruth v. Cherokee Funding LLC, the Georgia Supreme Court concluded that a Consumer Legal Funding agreement was not a loan but rather a contingent investment transaction. Because repayment occurred only if the consumer recovered funds through the legal claim, the court determined the agreement was outside Georgia's usury statutes.

These decisions are significant because they recognize an important legal principle: where repayment is contingent rather than guaranteed, the transaction is fundamentally different from a traditional loan.

Legislatures Are Also Drawing the Distinction

Courts are not alone in recognizing the unique nature of Consumer Legal Funding.

State legislatures across the country increasingly distinguish Consumer Legal Funding from commercial litigation finance.

Kansas recently enacted the Consumer Legal Funding Act (HB 2528), establishing a comprehensive regulatory framework governing Consumer Legal Funding. The law includes licensing requirements, plain-language disclosures, attorney acknowledgments, cancellation rights, and strict prohibitions preventing funding companies from directing litigation or settlement decisions.

Kansas is just one of the several states — including California, New York, Oklahoma, Utah, Nebraska and Georgia, just to name a few — that regulate Consumer Legal Funding.

Perhaps most telling is Arizona. Arizona's Rules of Civil Procedure require disclosure of commercial litigation funding arrangements in appropriate cases while expressly distinguishing those arrangements from traditional Consumer Legal Funding provided to individual consumers for personal and household expenses. That distinction reflects judicial recognition that the policy considerations governing institutional investment in litigation differ substantially from those governing modest consumer funding.

That growing body of legislation reflects a simple reality: Consumer Legal Funding and commercial litigation finance are not the same product.

Commercial Litigation Finance Is an Entirely Different Market

The distinction becomes even clearer when examining the federal government's own research.

The U.S. Government Accountability Office's report, Third-Party Litigation Financing: Market Characteristics, Data, and Trends, describes a market dominated by institutional investors financing commercial disputes involving corporations, intellectual property claims, antitrust litigation, and other complex business matters.

These transactions often involve millions of dollars and sophisticated investment strategies.

That is not Consumer Legal Funding.

Consumer Legal Funding involves modest, non-recourse transactions with injured individuals who need assistance paying ordinary household expenses while their legal claims proceed.

The GAO's description of commercial litigation finance underscores why policymakers should resist treating every form of litigation-related funding as though it were part of one industry.

It is not.

Consumer Legal Funding Does Not Create a "Tort Tax"

Critics frequently argue that litigation funding contributes to what they call a "tort tax" by increasing litigation costs and ultimately driving higher insurance premiums.

Even assuming broader debates about litigation costs deserve attention, Consumer Legal Funding is simply the wrong target.

Consumer Legal Funding does not:

• Cause automobile accidents.
• Manufacture defective products.
• Commit medical malpractice.
• Create unsafe workplaces.
• Finance attorneys' fees.
• Pay expert witnesses.
• Direct litigation strategy.
• Encourage frivolous lawsuits.

The funding company becomes involved only after the injury has already occurred.

If Consumer Legal Funding disappeared tomorrow, accidents would still happen.

Negligence would still occur.

People with legitimate claims would still file lawsuits.

The only meaningful difference would be that more injured consumers would face eviction notices, utility shutoffs, repossessions, and financial desperation while waiting for the justice system to resolve their claims.

Calling that a "tort tax" ignores the actual purpose of the product.

Helping Consumers Avoid Forced Settlements

One of the least appreciated benefits of Consumer Legal Funding is that it helps consumers make settlement decisions based upon the merits of their cases rather than immediate financial desperation.

An injured consumer who cannot pay rent may feel compelled to accept the first settlement offer regardless of whether it fairly compensates for the injury.

That is not justice.

Consumer Legal Funding provides temporary financial stability so consumers can evaluate settlement offers with their attorneys rather than being forced into accepting inadequate compensation simply to keep food on the table.

This does not inflate damages.

It does not manufacture lawsuits.

It simply helps level the playing field.

Responsible Regulation Is the Right Approach

The Consumer Legal Funding industry has consistently supported reasonable regulation that protects consumers.

The Alliance for Responsible Consumer Legal Funding advocates for legislation requiring:

• Licensing of funding companies.
• Plain-language contracts.
• Attorney acknowledgments.
• Clear disclosure of repayment schedules.
• Cancellation periods.
• Prohibitions against controlling litigation.
• Strong enforcement authority for state regulators.

These protections benefit consumers while preserving access to a financial product that many injured families rely upon during periods of financial hardship.

What should be avoided is legislation that assumes Consumer Legal Funding is merely another form of commercial litigation finance.

It is not.

Separate Products Require Separate Policy

The growing consensus among courts, legislatures, and regulators points in one direction.

The Minnesota Supreme Court recognizes Consumer Legal Funding is not a loan.

The Georgia Supreme Court recognizes Consumer Legal Funding is not a loan.

Kansas and numerous other states regulate Consumer Legal Funding independently from commercial litigation finance.

The Government Accountability Office recognizes that commercial litigation finance primarily concerns institutional investment in business disputes.

These authorities collectively demonstrate that Consumer Legal Funding occupies a unique place within the civil justice system.

It deserves to be evaluated on its own merits.

The Bottom Line

Consumer Legal Funding exists because justice takes time, while financial obligations do not.

Consumers cannot postpone their rent until after trial.

They cannot delay buying groceries until after mediation.

They cannot tell the utility company they will pay the electric bill after settlement.

Consumer Legal Funding fills that gap by providing modest, non-recourse funding that places the financial risk on the funding company, not the injured consumer.

It is not third-party litigation financing.

It is not a loan.

It does not finance litigation.

It does not create a "tort tax."

It helps injured Americans weather one of the most financially vulnerable periods of their lives while preserving their ability to pursue legitimate legal claims without being forced into unfair settlements.

As policymakers continue debating litigation finance, they should begin with a simple principle: regulate products based on what they actually are, not on misconceptions about what they are not.

Consumer Legal Funding should be judged by its true purpose.

It is, and always has been, about Funding Lives, Not Litigation.