North Carolina has become the first state in the country to enact an outright ban on third-party litigation financing. This potentially changes how plaintiffs pay litigation expenses while their personal injury lawsuits are pending.
Litigation Financing Defined
Litigation financing is a financial arrangement in which a company that is not involved in a lawsuit provides money to a plaintiff or law firm during litigation. Generally, the funding is repaid at the conclusion of litigation from the proceeds of a settlement or judgment. In other words, repayment may depend on the outcome of the case.
In a personal injury lawsuit, a plaintiff may use litigation financing to help cover living expenses, medical bills, or other financial obligations while waiting for the case to be resolved. Oftentimes, plaintiffs seek this funding in pharmaceutical product liability lawsuits because the cases can last a long time. But, unlike a traditional loan, litigation financing can involve substantial fees or returns to the funding company.
Litigation Financing is Controversial
Supporters argue that litigation financing can give plaintiffs access to financial resources. Further, supporters argue that the arrangement can allow plaintiffs to pursue legitimate claims without accepting early settlements simply because they need money.
Alternatively, critics argue that litigation financing can create conflicts of interest. Additionally, litigation financing may increase the cost of resolving a personal injury lawsuit. Because funders may receive a percentage of a settlement or judgment, they have a financial interest in the litigation. Plaintiffs may also face significant repayment obligations, potentially reducing the amount they ultimately receive.
This type of funding can also raise concerns about who controls personal injury litigation decisions. Important decisions include settlement negotiations, expert witnesses, and legal strategy. These concerns have led some states to impose restrictions on litigation financing.
Bans on Litigation Financing in Other States
North Carolina’s new law goes further than restrictions adopted in other states. At least eleven states have enacted some form of regulation involving third-party litigation financing. These measures include disclosure requirements, restrictions on funders’ ability to influence litigation decisions, registration requirements, and limitations involving foreign interests.
For example, Georgia enacted legislation in 2025 requiring certain litigation financiers to register with the state and disclose information concerning their ownership and foreign affiliations. The law also restricts funders from making decisions regarding attorneys, settlements, and expert witnesses.
North Carolina’s legislation takes a broader approach. Specifically, it generally prohibits a person from providing litigation investment to a party or attorney involved in a civil proceeding in the state.
What This Means for Personal Injury Plaintiffs
The laws governing litigation financing and personal injury lawsuits vary from state to state. Plaintiffs considering litigation funding should understand the terms of any agreement. Terms to be considered include interest, fees, repayment obligations, and whether the funder can exercise any control over the case.
