Is pre-settlement funding legal in my state?

By Michael Shemtoub, trial attorney, Beverly Law. Updated November 2026.

Why the answer changes from state to state

No federal law governs these contracts. The GAO reported in 2022 that the industry “is not specifically regulated under federal law” (GAO-23-105210). That leaves each state with its own mix of rules: funding statutes, usury and consumer credit laws, and old common-law doctrines against “champerty,” the practice of an outsider paying for someone’s lawsuit in exchange for a share of the proceeds. The states fall into three rough groups. Our state-by-state law table has the citation for each one.

Group 1: states with a funding statute

As of November 2026, these states have a statute written for consumer funding: Arkansas, California, Georgia, Illinois, Indiana, Kansas, Maine, Missouri, Montana, Nebraska, Nevada, New York, Ohio, Oklahoma, Tennessee, Utah, Vermont and West Virginia.

These laws allow funding but put conditions on it. Common features include registration or licensing of funders, required disclosures on the first page of the contract, a short window to cancel, a signed acknowledgment from your lawyer, a ban on the funder controlling your case, and in some states a cap on charges. A company that ignores the statute can lose some of its rights. In Indiana, for example, a provider that intentionally violates the law may recover only the funded amount (Ind. Code 24-12-5-2).

California joined this group when its Consumer Legal Funding Act took effect on January 1, 2026. It limits charges to 36 months from funding and requires that the payoff be “a predetermined amount” tied to time rather than a percentage of the recovery (Bus. & Prof. Code § 6253; § 6250(a)). Our California page covers the rest of that law.

Group 2: states where courts have set the rules

In these seven states there is no funding statute, and the main law comes from court decisions applying older statutes:

• Colorado: the state Supreme Court held these advances are loans under the Uniform Consumer Credit Code, so lending rules apply (Oasis v. Coffman, 2015 CO 63).
• North Carolina: the court of appeals applied the state usury statute to a contingent advance (Odell v. Legal Bucks (2008)). A 2026 law bans “litigation investment” that pays for a case’s fees and costs, but it excludes money for “personal and household expenses” that is not used for the case (S.L. 2026-14).
• Minnesota: the Supreme Court abolished the state’s common-law ban on champerty in 2020, so funding contracts are not void on that ground, though courts can still review them for unconscionability (Maslowski v. Prospect Funding Partners).
• Michigan: the court of appeals treated advances made after a verdict as usurious loans (Lawsuit Financial v. Curry (2004)).
• Pennsylvania: the Superior Court held that investors who lent money for a company’s lawsuit, to be repaid from the proceeds, had a champertous and invalid arrangement (WFIC, LLC v. LaBarre, 2016 PA Super 209). It was not a consumer case, but it shows champerty is still a live defense there.
• Texas: a Houston appeals court held that investors repaid only if a company’s lawsuit produced cash had not made usurious loans, because there was no “absolute obligation to repay” (Anglo-Dutch Petroleum Int’l v. Haskell, 193 S.W.3d 87 (Tex. App. 2006)). That was also a commercial case, discussed below.
• Kentucky, discussed next.

Kentucky: contracts held void as champerty

Kentucky has a champerty statute, KRS 372.060, and no funding statute. In 2019 the U.S. Court of Appeals for the Sixth Circuit, applying Kentucky law, predicted that the Kentucky Supreme Court “would hold that the Agreements violate” that statute, affirmed that the funding contracts were void, and agreed that their rates violated Kentucky’s usury statute even though repayment was contingent (Boling v. Prospect Funding Holdings, No. 18-5599 (6th Cir. Apr. 25, 2019)).

Two limits matter. The opinion is marked “not recommended for publication,” so it does not bind later Sixth Circuit panels, and it is a federal court’s prediction; Kentucky’s own Supreme Court has not ruled. It also held that Kentucky law applied even though the contracts chose the law of New Jersey, Minnesota and New York, because the client lived, was hurt and sued in Kentucky. More on our Kentucky page.

Ohio: from void to regulated

Ohio shows how a state can move between groups. In 2003 the Ohio Supreme Court held that “a contract making the repayment of funds advanced to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance,” unless a statute or Ohio’s lawyer ethics code (then the Code of Professional Responsibility) allowed it (Rancman v. Interim Settlement Funding Corp., 2003-Ohio-2721). The legislature answered with R.C. 1349.55, effective August 27, 2008, which allowed “non-recourse civil litigation advance” contracts that met disclosure and cancellation rules (R.C. 1349.55).

On October 6, 2026, House Bill 105 replaced that section with a new chapter, R.C. 1357 (HB 105). It gives consumers ten business days to cancel (R.C. 1357.03), caps a one-time service fee at 7% of the funded amount and bans prepayment penalties (R.C. 1357.04). See our Ohio page.

Group 3: states with no specific law

The other 25 states and the District of Columbia, including Washington and Florida, have no statute written for consumer funding and no published appellate decision that decides how a funding company’s contract is treated, as far as we found. In those states a contract is judged under general contract, usury, consumer protection and champerty law, case by case, and the contract’s own terms carry more weight.

Texas and Washington

Texas has no consumer funding statute, and the main appellate decision we found on contingent funding involved a commercial lawsuit. Its ethics rules do let a Texas lawyer advance “reasonably necessary medical and living expenses”, with repayment that may depend on the outcome (Tex. Disciplinary R. Prof’l Conduct 1.08(d)), which gives clients there an option many other states do not. Texas cases are handled by the firm’s Texas-licensed attorneys, Joyce Ondich and John Efstathiou. See our Texas page.

Washington also has no consumer funding statute, and its ethics rule bars lawyers from making loans to clients for living expenses during litigation (Wash. RPC 1.8(e) and cmt. 10). See our Washington page.

What this means for you

• Look up your state in the table before you apply, and check again if your case runs long, because legislatures have changed these laws often in the past two years.
• If your state requires funders to register or hold a license, ask for proof.
• Read the contract’s choice-of-law clause. As the Kentucky case shows, a court may apply your home state’s law anyway, but you should know which state’s rules the company is relying on.

Common questions

Related pages

Cash advance on a lawsuit · Laws by state · Injury law FAQs

Important: This page is general information, not legal or medical advice, and reading it does not create an attorney-client relationship. Every case is different; talk to a lawyer about yours. Texas cases are handled by the firm’s Texas-licensed attorneys, Joyce Ondich and John Efstathiou. Last reviewed: November 7, 2026.