Why Law Firms Need a Formal Policy on Funding Requests

Why Law Firms Need a Formal Policy on Funding Requests

Short answer: A formal funding policy helps plaintiff firms handle client funding requests consistently. It keeps the firm compliant with ethics rules and new state laws, and it gets clients the financial support they need faster, so they can wait for a fair settlement instead of accepting an early low offer.

As legal funding becomes more common in personal injury and mass tort litigation, plaintiff firms increasingly field questions from clients who need financial support during long cases. Legal funding helps those clients cover rent, medical bills and daily expenses while the case moves forward. That gives attorneys the time to pursue full case value. Without a formal internal policy, your firm may respond inconsistently, create misunderstandings, or overlook compliance obligations. A structured approach helps manage expectations, protect client interests, and streamline communication with trusted funding companies.

A well-designed policy answers core questions: Which funders does the firm work with? How are requests documented? Who within the firm handles communication? When does the firm decline to assist? The answers ensure every client receives consistent, fair guidance tailored to their financial and legal situation.

New Laws Make a Written Policy More Important in 2026

Consumer legal funding is now an established, regulated industry, and recent laws give attorneys clearer rules to follow.

California's AB 931 took effect on January 1, 2026. It requires plain-language funding contracts and gives consumers a five-business-day right to cancel. It also prohibits referral fees and other financial arrangements between attorneys and funders, and it bars funders from influencing case strategy or 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's Consumer Litigation Funding Act has been largely in effect since June 2026. It caps funder charges at 25% of the gross recovery, on top of the amount advanced, and gives consumers 10 days to cancel. It also requires the client's attorney to sign an acknowledgment of counsel for the contract to be valid.

Many other states also regulate consumer legal funding, including Illinois, Indiana, Missouri, Ohio, Tennessee and Utah. ABA Model Rule 1.8(e) generally bars lawyers from giving clients financial assistance themselves, which is why third-party funding fills such an important gap. A written policy keeps your staff current on these rules.

Establishing Approved Funding Partners

One of the first steps in designing a firmwide funding policy is identifying approved funders. Evaluate funding companies on contract transparency, communication practices, turnaround time, compliance with state law, and willingness to coordinate respectfully with legal staff. NYC Bar Formal Opinion 2024-2 advises lawyers to confirm a funder's legitimacy before referring clients. It also advises them not to take referral fees from, or invest in, funders they recommend.

An approved-funder list gives clients confidence that their lawyer has vetted the funder for fairness. This is especially valuable when cases involve liens, taxes, or support obligations. Clients can review how these deductions affect their net recovery with our guide to planning for taxes and liens before agreeing to funding. Working with reliable funders helps ensure each advance fits the expected value of the case.

Clear Communication Standards With Clients

Your policy should include guidelines for how attorneys and staff discuss funding with clients. This prevents misunderstandings, such as a client assuming the firm endorses a particular funder or guarantees an outcome. The decision to accept funding belongs to the client. Settlement decisions stay with the client and attorney, never the funder.

When a settlement falls short of expectations, clients may ask for a reduction on the payoff balance. Reputable funders often work with clients and attorneys in these situations, as discussed in our article on negotiating a voluntary discount on your funding payoff.

Clients should understand three things. Consumer legal funding is typically non-recourse, so if the case is lost, they generally owe nothing. Fees grow over time. And taking only what they need gets the most value from funding. In some states, including New York, attorneys may not give tax or financial advice about the funding transaction, so your scripts should reflect that.

Documentation Requirements to Support Funding Requests

Your policy should specify which documents to assemble before forwarding a case to a funder, such as medical records, treatment summaries, accident reports, lien ledgers, or case evaluations. Organized documentation leads to faster decisions and fewer repeat requests.

Under Model Rule 1.6, get the client's informed consent before sharing case information. Share only what the funder needs, and use confidentiality agreements to help protect privilege and work product.

Documentation matters even more in mass torts, where thousands of plaintiffs may wait on bellwether results to shape settlement negotiations. Documentation needs shift as those cases evolve, as described in our article on legal funding in mass tort bellwether trials.

Conflict Checks and Ethical Safeguards

A robust policy outlines how to check for potential conflicts, both legal and practical. For example, attorneys can help clients choose an advance amount that meets their needs while protecting their net recovery.

For many clients, legal funding is a safer choice than draining retirement savings. A 401(k) loan must be repaid whether or not the case succeeds, while consumer legal funding is typically repaid only from a successful outcome. Our legal funding vs. 401(k) and retirement plan loans comparison explains the differences.

Firms should avoid making the client's financial decisions for them while ensuring clients understand the structure and size of their advance.

Handling Requests From Pro Se Clients Seeking Representation

Firms sometimes meet pro se litigants who have already looked into funding before hiring counsel. Most funders require attorney representation, and New York's law requires an attorney's acknowledgment for a valid contract. Hiring a lawyer is often what makes funding possible. Pro se litigants also tend to face documentation gaps and procedural hurdles, as discussed in our article on pro se plaintiffs and the extra hurdles of legal funding. A clear policy helps your intake team explain this without making unintended commitments.

Timing Considerations and Advance Requests

Clients may request funding at almost any stage: early in the case, during discovery, during negotiations, or while waiting on a court decision. As a case develops, documentation grows and case value becomes clearer, which can support a larger advance. Clients without urgent needs may benefit from waiting until their case is more developed.

In expert-heavy litigation, firms often invest significant time and resources before a case matures. Funding keeps clients financially stable through these long stages, so attorneys can complete expert work without pressure to settle quickly. Learn more in our article on using legal funding to support expert-heavy litigation.

When Clients Request Too Much Funding

Your policy should also guide responses when a client requests more than the case reasonably supports. A written policy makes these conversations easier. Attorneys can explain that a right-sized advance covers immediate needs while preserving more of the final recovery. In most cases, a modest pre-settlement funding advance tied to a realistic case value is the best fit.

Reducing Misunderstandings Through Consistent Internal Training

A written policy only works if the whole staff understands it. Intake coordinators, paralegals, case managers, and attorneys should be trained on the firm's approved funders, how to handle client inquiries, state requirements, and what to avoid saying. When everyone uses the same framework, clients get clear, consistent guidance and faster access to funding.

Frequently Asked Questions

Is legal funding a loan?

Consumer legal funding is typically a non-recourse advance, not a traditional loan. It is repaid from a successful settlement or verdict, and if the case is lost, the client generally owes nothing.

Can an attorney take a referral fee from a legal funding company?

Generally, no. California and New York expressly prohibit it, and ethics opinions advise against it.

I'm a plaintiff. Should I talk to my attorney before applying for funding?

Yes. Your attorney can share the documents a funder needs and confirm the funder's interest in your case. That usually speeds up approval.

Final Thought: A Policy That Protects Everyone

A funding policy is about clarity, fairness, and protection. Legal funding gives plaintiffs the financial breathing room to pursue the full value of their claims, and a thoughtful policy helps firms offer that support efficiently and in compliance with the law. As litigation timelines grow and plaintiffs face financial strain long before resolution, a clear policy lets both clients and firms approach funding with confidence.