Unchecked. Unfair. Unseen.
Lawsuit Lenders Are Pulling the Strings and Preying on Vulnerable Californians.
Consumers for Fair Legal Funding - California (CFLF-CA) is working to stop predatory lawsuit lenders, who are targeting and taking advantage of vulnerable Californians. These lenders are also hurting small businesses, which operate on thin margins and can be bankrupted by one big settlement.
The absence of any regulations or guardrails on the practice has created a burgeoning industry where large investment firms take advantage of Californians who need financial assistance.
What Is Lawsuit Lending?
Lawsuit lending—also called “third party litigation funding,” “pre-settlement funding,” or even “car accident loans”—may look like a lifeline on the surface. But behind the curtain, powerful financial players are quietly pulling the strings.
Here’s how it works: lenders front cash to individuals while their case is pending, with the promise of repayment, plus steep interest, from any eventual settlement. But in many cases, borrowers end up owing more than their final settlement payout. The puppet master always gets paid—even if the plaintiff walks away with nothing.
Who’s Pulling the Strings?
Some investors are using this practice to turn the civil justice system into a for-profit enterprise. Because the industry operates in total secrecy, the existence of the funding agreements is largely undisclosed and is completely unregulated; these lenders—often backed by hedge funds or foreign investors—are free to charge sky-high interest rates, sometimes 100% or more. To maximize profit on their investments, litigation funders seek to increase the likelihood of going to trial, which results in clogged courts and unnecessary lawsuits in cases where parties and the courts would otherwise seek a negotiated settlement. Much like unseen puppeteers, they influence the outcome without ever stepping into the spotlight.
Not All Lenders Are the Enemy—But the Bad Actors Must Be Stopped
Lawsuit lending can serve a legitimate purpose and provide essential support to people facing financial hardship during a legal fight. But without guardrails, unscrupulous lenders manipulate the system and exploit vulnerable Californians, turning the justice process into their puppet show.
Almost all forms of lending are regulated, either at the state or federal level, or both – but not lawsuit lending. Litigation financiers skirt consumer protection laws by exploiting loopholes that enable lenders to classify their loans to clients as an “investment” or “non-recourse agreement” rather than a loan. This exploitation must stop. California lacks regulations on litigation funding, allowing funders to impose predatory interest rates and contracts on injured consumers. To protect consumers, a 36% annual interest rate cap—similar to those in other states—should be implemented to prevent excessive costs on the consumer while still enabling fair settlements.”
We are NOT calling for an end to lawsuit lending. We are simply advocating for sensible safeguards to protect Californians. It’s time to expose the puppeteers and restore fairness to our state’s civil justice system.
Who’s Caught in the Puppet Strings?
Californians with strong legal claims—but no savings, no credit, and no financial safety net—are prime targets for predatory lawsuit lenders. These hidden puppeteers exploit the most vulnerable. These lenders also hurt small businesses, which operate on thin margins and can be bankrupted by one big settlement. With no regulations to stop them, lenders lock borrowers into high-interest deals that drain settlements before they ever reach the people who need them most.
California has become one of the most “attractive” states for lawsuit funders. These secret deals inflate legal costs, encourage abusive lawsuits, and can bankrupt small businesses operating on razor-thin margins. The average household pays a $5,429 “tort tax” annually due to unnecessary and abusive lawsuits. This is money that could go toward growth, wages, or everyday essentials. Instead, it props up a hidden industry pulling the strings behind the scenes of our justice system.
