How Should Law Firms Handle Client Funding Requests? A 2026 Policy Guide for Attorneys

How Should Law Firms Handle Client Funding Requests? A 2026 Policy Guide for Attorneys

The Short Answer

Personal injury clients frequently ask their attorneys about pre-settlement funding while a case is pending. In short, a law firm should handle these requests through a written policy that defines who responds, what staff can and cannot say, what case information may be shared with a funding company and with whose consent, who reviews and signs attorney acknowledgments, and how funding payoffs are handled at settlement.

As of 2026, a written process is more than good practice in some states. California and New York now impose specific obligations on the attorneys of clients who take consumer legal funding, including a signed attorney acknowledgment without which the funding contract is void. Requirements vary by state, so a firm's policy should reflect the rules that apply where its clients live and where its cases are pending.

What Consumer Legal Funding Is, and What It Is Not

Consumer legal funding, commonly called pre-settlement funding, is a non-recourse transaction in which a funding company provides money to a plaintiff in exchange for a contingent right to part of the eventual recovery. If the case produces no recovery, the plaintiff generally owes nothing. California and New York both define consumer legal funding in these terms in their new statutes.

Consumer legal funding comes from a third party, not from the attorney. That distinction matters because lawyers are generally restricted from giving clients financial help. ABA Model Rule 1.8(e) prohibits a lawyer from providing financial assistance to a client in connection with pending or contemplated litigation, with exceptions for court costs and litigation expenses and, since a 2020 amendment, modest gifts for basic living expenses to indigent clients represented pro bono. Each state has adopted its own version of this rule; California's counterpart is Rule 1.8.5 of the California Rules of Professional Conduct. For a client who cannot cover rent or medical bills while a case proceeds, a third-party funding company is often one of the few options available.

What Has Changed: New Attorney Obligations in California and New York

California. AB 931, the California Consumer Legal Funding Act, added Business and Professions Code sections 6250 through 6256 and took effect January 1, 2026. Every consumer legal funding contract must include a written acknowledgment from the consumer's attorney attesting that the attorney reviewed the required disclosures with the client, is compensated on a contingency basis under a written agreement, will disburse the proceeds through the client trust account or a separate settlement fund, will disburse funds in accordance with the contract, and has not received and will not receive a referral fee or other consideration from the funding company. If the acknowledgment is missing, the transaction and contract are null and void.

AB 931 also places direct limits on attorneys. The client's attorney and the attorney's immediate family may not have a financial interest in a funding company offering funding, and the attorney may not provide consumer legal funding directly. The attorney may not disclose privileged information to a funding company without the client's written consent, although disclosure at the client's request does not otherwise waive the privilege. Violations of these attorney provisions are grounds for State Bar discipline. On the funding company side, the law requires plain-English contracts, a five-business-day right to cancel, a stated maximum repayment amount, a 36-month limit on how long charges can accrue, a ban on referral fees paid to attorneys or their staff, and a ban on funder involvement in settlement decisions. Rockpoint Legal Funding supported the passage of AB 931 alongside the Consumer Attorneys of California and the Alliance for Responsible Consumer Legal Funding.

New York. The Consumer Litigation Funding Act, signed in December 2025 and amended in early 2026, is codified as Article 10 of the New York Financial Services Law. Its substantive provisions, including contract, disclosure, and attorney acknowledgment requirements, apply to funding agreements entered into on or after June 17, 2026. The consumer's attorney must execute an acknowledgment of counsel for the contract to be valid, and the gross recovery amount must be disclosed so that compliance with the statutory limit can be confirmed. The total a funding company may collect is limited to the funded amount plus 25% of the gross recovery. Consumers may cancel within ten business days by returning the funds. A funding company generally may not fund a claim in which another funder already holds an unsatisfied interest unless the earlier funding is paid off or all parties agree in writing. Registration with the New York Department of Financial Services phases in later, and DFS maintains a consumer page on the law. Agreements signed before June 17, 2026 are not governed by the Act.

Other states. Several other states, including Ohio, Indiana, Oklahoma, Tennessee, Nevada, Utah, Illinois, and Missouri, have their own consumer legal funding statutes, with differing disclosure, fee, registration, and acknowledgment rules. Additional bills were introduced in 2026 legislative sessions, including in New Jersey and Louisiana. Rockpoint Legal Funding's overview of interest caps and state regulations summarizes the broader state landscape.

The practical takeaway: in California and New York, the attorney's acknowledgment is a legal condition of a valid funding contract, so a firm needs a controlled process for reviewing and signing it.

What the Ethics Guidance Says

Statutes are only part of the picture. Professional conduct rules and bar guidance also shape how attorneys should respond to funding requests, and they vary by jurisdiction.

The American Bar Association's Best Practices for Third-Party Litigation Funding, approved by the ABA House of Delegates in August 2020, is framed as a list of issues to consider rather than as binding standards of conduct. Several themes from that guidance and the ABA Model Rules apply directly to consumer funding requests. The client, not the funder or the lawyer, controls decisions about settlement (Model Rule 1.2(a)). Sharing case information with a funder implicates the duty of confidentiality and typically requires the client's informed consent (Model Rule 1.6). A lawyer with a personal or financial interest in a funding company may face a conflict of interest (Model Rule 1.7). And a lawyer may not give or accept anything of value for recommending someone's services, subject to limited exceptions (Model Rule 7.2(b)). In California, State Bar Formal Opinion No. 2020-204 addresses attorney duties when a client uses litigation funding.

For law firms, the key issue is independence: the firm can explain funding and facilitate the paperwork, but it should not steer the client, profit from the transaction, or allow a funder to influence case strategy.

Funding Agreements Can Be Discoverable

Attorneys should not assume that funding agreements will stay out of discovery. In Lituma v. Liberty Coca-Cola Beverages LLC, 243 A.D.3d 504 (1st Dep't 2025), New York's Appellate Division, First Department, affirmed an order compelling discovery of litigation funding agreements in a motor vehicle case where the defendants supported a fraud counterclaim alleging a staged accident with specific evidence. The decision turned on those fraud allegations and does not make funding agreements discoverable in every New York case, and courts in other jurisdictions have reached different conclusions.

The ABA's 2020 guidance advises attorneys to assume that funding documents may eventually be read by parties whose interests differ from the client's. The practical takeaway for firms is to keep communications with funding companies factual, share only what a funder needs to evaluate the request, and avoid sending internal strategy memos or case evaluations that the firm would not want an opposing party to see.

What a Law Firm Funding Policy Should Cover

Who Responds to Funding Inquiries

The policy should name one person or a small team, often a case manager working with the supervising attorney, to handle funding questions and paperwork. Intake coordinators and paralegals should be trained to answer basic factual questions and route everything else to that team. Staff should avoid describing any funding company as the firm's partner, predicting settlement values or timelines to support a funding request, or suggesting that the firm guarantees any repayment outcome. Rockpoint Legal Funding has published more detail on communication protocols law firms can use around client funding.

How the Firm Evaluates Funding Companies

Whether or not a firm keeps a list of companies it has worked with, it should document the criteria it uses. Useful questions include whether the company complies with the funding statute in the client's state and, where required, is registered; whether the contract states the maximum repayment amount in plain language and explains how charges accrue over time; whether the company pays referral fees or other consideration to attorneys or staff, which California and New York prohibit and the American Legal Finance Association's code of conduct disallows for member companies; whether the contract disclaims any role in settlement decisions; and whether the company provides written payoff statements promptly.

Presenting a single company as "the firm's funder" can look like an endorsement. The client should understand that the choice of company, and the decision to take funding at all, is theirs.

Client Consent and What Information Is Shared

The firm should obtain the client's written authorization before sending any case information to a funding company. California requires written consent before an attorney discloses privileged information to a funder, and informed consent is the safer default everywhere. Funding companies typically ask for the retainer agreement, the police or incident report, medical records and treatment status, insurance coverage information, and any existing liens. The policy should limit disclosures to what is needed to evaluate the request.

Coverage information often drives how much funding a case can support, because available insurance limits cap realistic recovery in many personal injury matters. Rockpoint Legal Funding offers policy limit searches that law firms can use to assess coverage early in a case.

Reviewing and Signing Attorney Acknowledgments

The policy should specify which attorneys may sign acknowledgments and what they must confirm first. Before signing, the attorney should verify that the required disclosures were actually reviewed with the client, that every statement in the acknowledgment is true (including that no one at the firm has received or will receive consideration from the funder), and whether the client has any prior funding or assignment on the claim. Both California and New York restrict funding a claim that is already subject to an unpaid assignment. The executed contract should be saved to the case file and entered in the settlement ledger, and the cancellation window should be calendared.

Advising Clients on Amount and Timing

The decision to take funding belongs to the client. The attorney can help the client understand how funding charges grow over time relative to the expected net recovery after attorney fees, medical liens, and case costs, without promising any outcome. Encouraging clients to request only what they need for essentials such as rent, utilities, and transportation protects their net recovery. The firm should also avoid giving tax or financial planning advice about the transaction; New York's acknowledgment of counsel includes a statement that the attorney has not provided that type of advice, and clients who need it should be referred to a qualified professional.

Clients who receive Supplemental Security Income (SSI) need particular care. SSI is needs-based, and a lump sum held as a countable resource can affect SSI eligibility and linked Medicaid coverage. Social Security Disability Insurance (SSDI) is not needs-based and is generally not affected in the same way. Rockpoint Legal Funding's guide on how legal funding interacts with public benefits covers this distinction in more detail.

Settlement, Payoffs, and Reductions

Every funding agreement should be tracked in the settlement ledger alongside medical liens. Before disbursement, the firm should request a written payoff statement from each funding company. California and New York acknowledgments require the attorney to disburse proceeds through a trust account or settlement fund in accordance with the contract, and California contracts require the consumer or attorney to notify the funder of the case outcome.

If a settlement is smaller than expected, the firm may ask the funding company for a reduction on the client's behalf. Whether a reduction is available depends on the company and the contract; the ALFA code of conduct calls for reasonable negotiations over outstanding balances in certain circumstances, but no statute cited here requires a funder to reduce a balance.

Prospective Clients Who Already Have Funding

Intake forms should ask whether a prospective client has already received funding or assigned any part of the claim. A new attorney needs copies of prior contracts and current payoff amounts early, because those obligations affect net recovery and any future funding request. Under California law, a funding contract remains valid if the consumer later terminates the attorney who signed the acknowledgment. And because California and New York require an attorney acknowledgment, unrepresented plaintiffs generally cannot enter a compliant consumer legal funding contract in those states.

What Plaintiffs Should Understand

For plaintiffs, the key points are straightforward. Pre-settlement funding comes from a separate company, not from your attorney, and in most states your attorney is not allowed to lend you money for living expenses. The funding is non-recourse, so if your case produces no recovery, you generally owe nothing. The funding company does not decide whether or when your case settles; that decision remains yours, made with your attorney. In California you can cancel within five business days of receiving the funds, and in New York within ten business days, by returning the full amount. Because every dollar advanced reduces what you take home, it is usually best to request only what you need and to budget the advance carefully.

Frequently Asked Questions

Can a personal injury attorney lend money to a client for living expenses?

Generally, no. ABA Model Rule 1.8(e) and state counterparts such as California Rule 1.8.5 prohibit most financial assistance from a lawyer to a client in connection with litigation, with limited exceptions that vary by state. Third-party consumer legal funding exists partly because attorneys cannot fill that gap.

Does an attorney have to sign a pre-settlement funding contract?

In California and New York, yes. Both states require a signed attorney acknowledgment, and a contract without one is void. Other states have their own rules, and some do not require an acknowledgment at all.

Can a funding company pay a referral fee to a law firm?

California and New York prohibit funding companies from paying referral fees or other consideration to attorneys, law firms, or their employees. Separately, professional conduct rules based on ABA Model Rule 7.2(b) generally bar lawyers from accepting anything of value for recommending another person's services.

Does a funding company control when a case settles?

No. California and New York law bar consumer legal funding companies from making decisions about the conduct or settlement of the underlying claim, and under the professional conduct rules the client retains authority over settlement decisions.

How Rockpoint Legal Funding Works With Law Firms

Rockpoint Legal Funding is a California-based legal funding company that provides non-recourse pre-settlement funding to personal injury plaintiffs and works directly with their attorneys on documentation, acknowledgments, and payoffs. Rockpoint Legal Funding supported California's AB 931 and offers law firm services, including policy limit searches, to help attorneys evaluate cases and manage funding requests efficiently.

The Practical Takeaway

A written funding policy protects the client's recovery, the firm's ethical standing, and the validity of the funding contract itself. With California's AB 931 in effect since January 1, 2026, and New York's Consumer Litigation Funding Act applying to agreements signed on or after June 17, 2026, firms that handle funding requests informally now carry more risk than they did a year ago. The best time to adopt a policy is before the next client asks.

This article provides general information and is not legal advice. Laws and ethics rules vary by state and change over time; attorneys should review the current statute and rules in their jurisdiction.