Pre-Settlement Funding Glossary

An assignment of proceeds is the contractual mechanism underlying a plaintiff cash advance, under which the claimant assigns the funding company a defined interest in the proceeds of a specified claim — up to the funded amount plus accrued fees — rather than assigning the claim itself or any control over it. The assignment attaches only to money recovered from the claim (settlement, judgment, or verdict proceeds) and is drafted to be non-recourse, meaning the funding company's right to collect exists only against those proceeds and does not create personal liability for the claimant if the case produces nothing. Most funding agreements pair the assignment with an irrevocable instruction to the claimant's attorney to pay the funder directly out of the settlement disbursement before any funds reach the client, which the attorney separately acknowledges. Because the claimant — not the funder — remains the real party in interest and retains full control over case strategy and settlement decisions, a properly drafted assignment of proceeds is structured to avoid the transfer-of-control problems that concern courts and state bars evaluating whether a funding arrangement crosses into champerty or unauthorized claim ownership. The precision of the assignment language — what proceeds it reaches, what it excludes, and how it is extinguished if the claim resolves for less than expected — is among the most heavily negotiated drafting points in consumer funding agreements. More →

An attorney acknowledgment agreement is a separate document, executed by the claimant's counsel alongside the funding contract, in which the attorney confirms the representation, verifies the case details supplied in the application, and agrees to honor the assignment of proceeds by paying the funding company directly from settlement funds before disbursing the claimant's net recovery. Because the claimant's assignment alone does not bind the attorney — who holds the settlement funds in trust and owes independent duties to the client — funders treat the acknowledgment as the operative document that actually secures repayment, and most will not disburse an advance without it on file. The acknowledgment typically also requires the attorney to notify the funder of settlement, trial verdict, or case resolution, and to provide updates on material developments, converting counsel into the funder's primary channel of case information for the life of the advance. Ethics authorities in most states have found that signing an acknowledgment does not create an attorney-client relationship with the funder or improperly divide legal fees, provided the acknowledgment is limited to confirming facts and honoring the payment instruction rather than granting the funder any role in case strategy or settlement approval. Some state bars have issued guidance cautioning attorneys against representing to funders that a case will settle for a particular amount, since doing so risks tying counsel's professional judgment to the funder's investment thesis. More →

Attorney-directed funding is a pre-settlement funding origination channel in which the claimant's own attorney initiates or facilitates the funding application, typically because the client has expressed a financial need the attorney believes funding can responsibly address, and the attorney's office handles much of the documentation exchange with the funder directly. Because the referring attorney has already vetted the underlying case well enough to take it on contingency, and because the same attorney will be providing case updates and ultimately disbursing settlement proceeds, funders generally underwrite attorney-directed applications faster and with greater confidence than direct-to-consumer applications from unknown case sources. Many funders build formalized relationships with plaintiffs' firms — offering expedited review, dedicated underwriting contacts, or preferred pricing — specifically to capture attorney-directed volume, since a cooperative, established firm relationship reduces both underwriting friction and the operational risk of undisclosed stacking or unreported settlements. Ethics rules in most states permit an attorney to refer a client to a funding company, and to provide case information to facilitate that funding, but generally prohibit the attorney from receiving a referral fee, commission, or other financial benefit from the funder for the referral, since such an arrangement would create a conflict between the attorney's duty to the client and the attorney's financial interest in steering the client toward a particular funder. More →

The best interest standard is the substantive test a court applies under a state SSPA before approving a structured settlement factoring transaction, requiring the judge to find that the proposed transfer serves the payee's best interest — and, where the payee has minor children or other dependents relying on the payments, that it serves their best interest as well — rather than simply confirming the payee's informed consent. Courts applying the standard typically weigh the payee's stated reason for seeking the transfer (medical necessity, housing, debt relief, and education are generally viewed favorably; discretionary spending or repeated prior transfers draw more scrutiny), the proportion of the total payment stream being sold, the discount rate compared to other pending applications, and whether the payee has already factored other portions of the same structured settlement. A pattern of repeated transfers by the same payee is a particular concern courts have flagged, since it can indicate the original structure is being dismantled piecemeal in a way that undermines the long-term financial protection the settlement was designed to provide. Because the standard gives the reviewing judge discretion rather than a fixed formula, outcomes vary meaningfully by jurisdiction and even by judge, and factoring companies structure their proposed transactions — partial rather than full transfers, more favorable discount rates, clear documentation of need — specifically to maximize the likelihood of approval under this discretionary review. More →

A buyout, also called re-funding, is a transaction in which a new funding company pays off the outstanding balance owed to an existing funder on a claimant's case and originates a new, typically larger, advance to the claimant under its own terms. Buyouts occur when a claimant needs additional capital beyond what the original funder is willing to advance, when a competing funder offers materially better pricing or terms, or when the original funder declines to extend further credit against the case as it approaches its funding cap. The mechanics require the new funder to obtain a full payoff quote from the existing funder, verify the current case status and value, and structure the new advance to cover both the payoff amount and any additional funds requested by the claimant, meaning the effective new balance always exceeds what the claimant would owe by staying with the original funder and simply requesting more capital, if that option existed. Because each buyout typically restarts or extends the fee accrual period on the full combined balance, sequential buyouts across the life of a single case can meaningfully compress the claimant's ultimate net recovery even when each individual transaction appeared to offer better terms than the prior funder at the time. Attorneys and claimants considering a buyout weigh the immediate benefit of additional capital against the compounding effect of resetting fee accrual on a larger principal amount. More →

Case status monitoring is the ongoing process by which a pre-settlement funder tracks the progress of a funded claim between the initial advance and final resolution, typically through periodic check-ins with the claimant's attorney rather than direct contact with the claimant. Funding agreements generally include a covenant requiring the attorney or claimant to notify the funder of material developments — a settlement offer, a mediation date, a change of counsel, or the filing of suit — because the funder's return depends entirely on outcomes it cannot observe independently and has no right to influence. Monitoring serves two purposes: it lets the funder update its case value assessment as new information arrives (a helpful development can support a follow-on advance; an adverse one may trigger portfolio-level reserve adjustments), and it protects against the specific risk that a case settles without the funder's knowledge and disbursement occurs without the assignment being honored. Because funders have no visibility into settlement negotiations unless counsel provides it, monitoring in practice depends heavily on the strength of the funder's relationship with the law firm, and firms that reliably provide updates tend to receive faster decisions and better terms on future referrals from the same funder. More →

A case value assessment is the funding company's estimate of the likely settlement or judgment range for a claimant's pending case, produced during underwriting to determine whether — and how much — capital can be advanced against it. Unlike institutional commercial underwriting, which draws on expert damages models and extensive document discovery, consumer case value assessment relies on a compressed record: the police or incident report, treatment records and billing to date, the defendant's insurance policy declarations, and counsel's narrative of liability. Analysts weight the clarity of fault (a clear liability admission or citation moves value up; comparative negligence exposure moves it down), the nature and permanence of the injury, and — critically — the available insurance coverage, since a policy limit well below the medical specials effectively caps recoverable value regardless of injury severity. Funders typically advance only a modest fraction of the assessed value, preserving a cushion for treatment costs still accruing, attorney fees, other liens, and the uncertainty inherent in a case that has not yet been tried or settled. Because the assessment is revisited as the case progresses — after a demand is sent, after mediation, or after a policy-limits disclosure — the initial case value assessment functions less as a final number than as a ceiling that gets refined, and often lowered, as real information replaces early assumptions. More →

A compounding fee structure is a pre-settlement funding pricing model in which the periodic fee is calculated on the outstanding balance — including previously accrued fees — rather than on the original principal alone, causing the total repayment obligation to grow at an accelerating rate the longer a case remains unresolved. Under a typical compounding structure, a fee percentage is applied at set intervals (commonly monthly or quarterly) to the current balance, so each period's fee is larger in dollar terms than the last even though the percentage rate stays constant, which can produce a repayment obligation many times the original advance in cases that run several years, as personal injury litigation often does. Compounding structures have drawn sustained regulatory and consumer-advocate criticism, precisely because case duration is outside the claimant's control and a claimant with a slow-moving but ultimately successful case can see the balance grow to consume most or all of the eventual settlement. Some states that regulate consumer legal funding by statute restrict or prohibit compounding structures, or require that disclosure tables show the compounded balance at multiple future dates so the claimant can see the growth trajectory clearly before signing. Funders using compounding pricing generally justify it as compensation for the open-ended duration risk inherent in litigation, where the funder has no ability to accelerate resolution or predict how long a case will take. More →

A Consumer Legal Funding Act is state legislation that creates a specific statutory framework for pre-settlement funding transactions, distinguishing them from consumer loans and exempting properly structured non-recourse advances from usury caps and other lending regulations that would otherwise apply to a transaction where a business advances money to a consumer for a fee. Several states — including Ohio, Oklahoma, Nebraska, Vermont, Indiana, and Maine — have enacted statutes of this type, and while the specific requirements vary, they typically share a common structure: a mandated written disclosure of the funded amount, itemized fees, and total repayment obligation at set intervals; a requirement that the transaction be non-recourse; a prohibition on funders influencing settlement decisions or case strategy; and, in many states, registration or licensing obligations for companies offering the product. These statutes emerged largely in response to earlier disputes over whether unregulated cash advances should be treated as loans subject to interest rate caps, and their existence is what gives the industry a defensible basis for operating the product as a proceeds sale rather than credit. Where no such statute exists, funders in that state typically rely on general non-recourse contract principles and case law rather than a dedicated regulatory framework, which creates materially more legal uncertainty for both the funder and the claimant. More →

Consumer underwriting in the pre-settlement funding context is the end-to-end process by which a funding company reviews an application, verifies the claim, and issues a funding decision — typically within one to a few business days, far faster than institutional commercial underwriting. The process begins with a claimant or attorney submitting an application describing the incident, injuries, and counsel of record; the funder then contacts the attorney's office directly to confirm representation, request the case file (incident report, insurance information, treatment records, and any demand or offer already exchanged), and verify that no conflicting liens or prior advances exist against the same proceeds. Because consumer underwriting does not involve a credit check, employment verification, or income documentation, the entire decision turns on case-specific facts — liability, coverage, and treatment status — supplied largely through counsel rather than the claimant directly, making attorney cooperation the practical bottleneck in most transactions. Many funders use a tiered decisioning model: straightforward liability cases with confirmed coverage and a cooperating attorney clear quickly at standard terms, while disputed liability, uninsured defendants, or an unresponsive law office trigger manual review or decline. The process concludes with disclosure documents, an assignment of proceeds, and the attorney acknowledgment, all typically executed electronically before funds are wired. More →

A cooling-off period is a statutory window, typically a small number of business days after signing, during which a consumer who has entered a pre-settlement funding agreement may cancel the contract without owing any fee, provided they return the full amount originally advanced. States that regulate consumer legal funding by statute commonly include this protection as a check against high-pressure sales tactics, giving the claimant time to have the agreement reviewed by an attorney or simply reconsider the terms before the obligation becomes binding. The mechanics generally require written notice of cancellation delivered within the statutory window, and the funder is entitled only to recovery of principal already disbursed — no fee, discount, or penalty attaches if the right is exercised properly. Because most claimants funded through attorney-directed channels have already retained counsel before applying, the right to rescind functions less as a first opportunity for legal review and more as a backstop against remorse or a better offer found from a competing funder shortly after signing. Not every state mandates a cooling-off period, and where none is required by statute, the parties' contract controls whether any rescission right exists at all. More →

Direct-to-consumer funding is a pre-settlement funding origination channel in which the funding company markets and sells its product directly to injured claimants — through advertising, search marketing, or referral websites — rather than relying primarily on relationships with plaintiffs' attorneys to generate applications. In this channel, the claimant typically applies before, or independent of, significant attorney involvement in the funding process itself, and the funder's outreach to confirm representation and obtain case documents happens only after the application is submitted, which can slow underwriting relative to a referral that arrives already accompanied by attorney cooperation. Direct-to-consumer marketing has drawn more regulatory and consumer-advocate scrutiny than attorney-directed channels, in part because claimants responding to advertising may be under greater financial distress and less positioned to evaluate competing offers or fee structures carefully, and in part because the marketing itself sometimes implies faster or larger funding than a given case will actually support once underwritten. Because attorney cooperation is still required to complete any transaction — the acknowledgment agreement cannot be skipped regardless of how the application originated — direct-to-consumer funding does not eliminate the attorney's role, but it does shift the point at which the attorney becomes involved from origination to verification. More →

The discount rate in a structured settlement factoring transaction is the effective rate at which a factoring company reduces the present value of future periodic payments to arrive at the lump sum it offers the payee, functioning analogously to a present-value calculation but priced to build in the factoring company's required return, administrative costs, and the risk that court approval is denied or delayed. Because the underlying payment obligation is fixed and backed by an annuity issuer's credit rather than by contested litigation, the discount rate reflects financial pricing considerations — prevailing interest rates, the annuity issuer's credit quality, and the length and structure of the payment stream — much more than it reflects any case-specific risk. State SSPAs typically require the discount rate and its annualized equivalent to be disclosed to the payee in plain terms before the transaction closes, and courts reviewing petitions for approval frequently scrutinize the discount rate as a central factor in the best-interest determination. Discount rates in this segment have drawn sustained criticism from consumer advocates and some courts for running well above prevailing consumer borrowing rates — sometimes into double digits on an annualized basis — a gap the industry attributes to the transaction's small size, administrative overhead, and lack of standardized secondary-market pricing rather than to any credit risk in the underlying payments. More →

A funding cap is a limit — imposed by the funding company's own underwriting policy, by a state statute, or by both — on the amount that can be advanced against a pending claim, generally expressed as a maximum dollar amount or as a maximum percentage of the case's assessed value. Most funders self-impose a cap well below their own valuation of the case, commonly keeping cumulative advances to a modest fraction of the anticipated net settlement, specifically to preserve a meaningful recovery for the claimant and to protect against the risk that legal fees, medical liens, or a lower-than-expected settlement leave nothing to repay the advance. A handful of states go further and statutorily limit the amount or proportion that can be funded, or require the funder to certify that the total funded amount does not exceed a defined share of the projected recovery before the transaction can close. Funding caps become especially important where a claimant has already received one or more prior advances, since a second or third funder must assess not just the case's total value but how much of that value remains unencumbered by earlier liens and fee obligations before determining whether — and how much — additional capital can responsibly be advanced. More →

A funding denial is a funder's decision not to advance capital against a submitted claim, issued after underwriting review rather than automatically, and distinguishable from a denial in consumer lending because it reflects the funder's assessment of the case rather than the applicant's creditworthiness. Common grounds for denial include unclear or comparative liability, a defendant with no identifiable insurance coverage or assets, treatment records that undercut the claimed injury, a case still too early in the medical treatment process to value reliably, or an attorney's office that will not confirm representation or provide case documents. Denials also occur where a claimant already carries one or more prior advances on the same case at a level that would leave little or no net recovery after a realistic settlement, since further stacking would put the claimant in a worse financial position than declining to fund. Because the product is priced and structured around the claim rather than the person, a denial does not appear on a credit report and does not follow the claimant to other financial products, but it frequently does affect the claimant's ability to obtain funding elsewhere on the same case, since subsequent funders performing the same lien inquiry will see an existing balance or a recent decline. Reputable funders provide at least a general reason for denial to the referring attorney, both as a courtesy and because the same firm is a repeat source of future applications. More →

The independent professional advice requirement, found in most state Structured Settlement Protection Acts, obligates a factoring company to advise the payee in writing to seek independent advice — from an attorney, certified public accountant, actuary, or other qualified professional not affiliated with or paid by the factoring company — regarding the legal, tax, and financial implications of selling structured settlement payment rights, before the transfer proceeds to court. Most statutes allow the payee to waive this advice in writing, and in practice waiver is common because the professional's fee is generally not covered by the factoring company and the payee is often seeking the transaction precisely to solve an immediate cash need that a paid consultation would compound. Courts reviewing transfer petitions typically require proof that advice was either genuinely obtained or knowingly and voluntarily waived, and a defective waiver — one signed without adequate disclosure of what advice would have covered — has been grounds for courts to deny or delay approval. The requirement exists because a structured settlement payee, often years removed from the underlying injury and the attorney who negotiated the original settlement, may not otherwise have any professional guidance on whether the transaction's discount rate, tax consequences, or long-term impact on their financial security is reasonable. More →

A letter of protection is a written agreement, typically issued by the injured claimant's attorney to a treating medical provider, in which the attorney promises to pay the provider directly out of any settlement or judgment proceeds in exchange for the provider treating the claimant without requiring payment — or insurance — at the time of service. The LOP creates a lien against the eventual recovery, giving the provider priority to be paid from the proceeds before the client receives a net distribution, and it functions as the foundational document that makes medical lien financing possible, since the finance company is ultimately advancing against the payment right the LOP creates. Providers accept LOP arrangements because personal injury cases, particularly those with clear liability and identifiable insurance coverage, present a reasonably predictable — if delayed — path to payment, and many practices specialize in LOP-based treatment as a business line. Because there is no insurer negotiating rates in an LOP arrangement, providers frequently bill at a higher rate than they would accept from an insurance company or Medicare, a practice that has drawn scrutiny from defendants and courts assessing whether the billed amount reflects the reasonable value of the services for purposes of calculating recoverable medical damages. The LOP itself does not guarantee payment — if the case fails or settles for less than the total liens against it, providers holding an LOP have no independent right to collect from the claimant absent a separate agreement, though many provider agreements include such a fallback. More →

Medical lien financing is a financing product offered to treatment providers — rather than to the injured claimant — that advances cash against the provider's receivable for services rendered under a letter of protection, allowing the provider to be paid promptly instead of waiting years for the underlying injury claim to resolve. Under this structure, a specialty finance company purchases or advances against the provider's lien rights at a discount, taking on the same non-recourse-style risk that the case may resolve for less than the billed amount, or not at all, in exchange for a fee embedded in the discount applied to the receivable. This product is distinct from a plaintiff cash advance because the claimant never receives money and is not a party to the financing transaction, though the arrangement affects the claimant indirectly: the provider's willingness to treat without upfront payment, and therefore the claimant's access to care, often depends on the availability of this financing behind the scenes. Medical lien financing has grown alongside networks of providers — orthopedic surgeons, imaging centers, chiropractors, and specialty clinics — willing to treat personal injury patients on a lien basis specifically because a financing relationship lets them convert receivables into near-term cash flow rather than carrying the full balance until settlement. Because the finance company's return depends on the same case outcome that determines the claimant's recovery, its risk assessment mirrors plaintiff-side underwriting — liability, coverage, and case value — even though its contractual relationship runs to the provider, not the plaintiff. More →

A non-recourse consumer advance is a pre-settlement funding product structured so that the claimant's repayment obligation is capped at the proceeds actually recovered from the funded claim, with no obligation to repay from personal assets, wages, or credit if the case is lost, abandoned, or settles for less than the funded amount plus fees. This is the feature that separates the product from a personal loan and is the basis on which most state consumer legal funding statutes exempt the transaction from usury and lending laws that would otherwise apply. In practice, the non-recourse feature is tested at the margins: if a case settles for an amount that does not fully cover the accrued balance, a properly structured advance requires the funding company to accept a reduced payoff or, in true walk-away arrangements, to receive nothing, rather than pursuing the claimant for the shortfall. Some states go further and prohibit any confession of judgment, personal guarantee, or cross-collateralization against the claimant's other assets as a condition of qualifying for consumer legal funding treatment. For funders, the non-recourse feature is the reason underwriting is claim-driven rather than claimant-driven — credit score, income, and employment status are largely irrelevant, and the entire pricing and risk analysis is built around the projected value and timing of the case itself. More →

A plaintiff cash advance is a purchase of a contingent interest in the future proceeds of a pending personal injury or other tort claim, providing the injured claimant with cash before the case resolves. Structurally, it is styled as a sale of a portion of the anticipated settlement or judgment rather than a loan: the funding company acquires a right to be repaid from proceeds if and only if the case succeeds, and typically has no recourse to the claimant's other assets or wages if the case fails or nets less than expected. Amounts are usually small relative to institutional commercial funding — commonly a few hundred to a few tens of thousands of dollars — sized against the claimant's immediate financial pressure (lost wages, rent, medical costs not covered by treatment) rather than against total case exposure. Funding companies price the advance using a fee that accrues over time, typically expressed as a periodic percentage applied on a simple or compounding basis, and disburse funds directly to the claimant only after confirming counsel's engagement and the case's procedural posture through the attorney acknowledgment process. Because repayment depends entirely on the size and timing of an eventual settlement, the underwriting emphasis is on liability clarity, insurance coverage limits, and how far the claimant is willing to see the case through, rather than on credit history or income — the product is expressly not evaluated the way a personal loan would be. More →

A qualified assignment is the mechanism, established under Section 130 of the Internal Revenue Code, by which the defendant or its insurer in a settled injury case transfers its obligation to make future periodic payments to a third-party assignment company, which then purchases an annuity to fund those payments, all without triggering taxable gain to the original obligor. The qualified assignment is what makes the modern structured settlement industry possible: it lets an insurer close its file and remove the long-term payment obligation from its books, while the assignment company — typically an affiliate of a life insurer — becomes the party legally responsible for making the periodic payments to the claimant. When a structured settlement is later factored, the factoring company is purchasing payment rights from the original payee, not from the assignment company, and the assignment company's payment obligation continues undisturbed; the factoring transaction simply redirects where those payments are sent going forward, subject to the required court order. Because the assignment company's creditworthiness is what ultimately backs the payment stream, both the original payee and any later factoring purchaser have a direct interest in the financial strength of the life insurer funding the underlying annuity, independent of the litigation that produced the settlement. More →

A rate disclosure requirement obligates a pre-settlement funding company to provide the consumer, before or at the time of contracting, a written statement itemizing the amount funded, all fees and charges, and the total amount the consumer would owe at specified future intervals — commonly at six, twelve, twenty-four, and thirty-six months from funding — so the claimant can see how the balance grows if the case takes longer than expected to resolve. This mirrors the function of a Truth in Lending Act disclosure in consumer credit even though the transaction is not classified as a loan, and is one of the most consistently required elements across the states that regulate consumer legal funding by statute. The disclosure format typically presents the payoff schedule as a table rather than as an annualized percentage rate, both because the product's non-recourse, indefinite-term structure does not map cleanly onto an APR calculation and because most enabling statutes deliberately avoid triggering interest-rate-based lending regulation. For funders, the disclosure obligation shapes fee structure design at the outset — since the schedule must be presented and understood at signing, products with simple, predictable growth intervals are easier to disclose clearly than structures with variable or discretionary fee adjustments. More →

A reasonable value challenge is a defense argument, raised in litigation or settlement negotiation, that the amount billed by a treating provider under a letter of protection overstates the reasonable value of the medical services actually rendered, typically by comparing the billed rate to what the same provider accepts from insurers, Medicare, or Medicaid for identical procedures. Because LOP providers are not constrained by a negotiated insurance rate at the time of billing, the gap between billed and typically-accepted amounts can be substantial, and defendants use this gap to argue that the plaintiff's claimed medical specials — and therefore the anchor for pain and suffering multipliers commonly used in settlement valuation — are inflated. How courts treat this argument varies significantly by jurisdiction: some apply a collateral source rule that limits evidence of billed-versus-paid discrepancies at trial, some allow discovery into the financial relationships between the provider, any medical lien funder, and referring counsel, and others have adopted rules specifically addressing what a jury may consider when a plaintiff was treated on a lien basis rather than through insurance. Because the outcome of a reasonable value challenge can materially reduce the medical specials underlying a settlement demand, it directly affects both the claimant's net recovery and the ability of any lienholder — provider or medical lien financing company — to be paid in full from proceeds. More →

Reduction or negotiation of a funding balance is the practice, common at the close of a case, in which the claimant's attorney contacts the pre-settlement funding company to negotiate a lower payoff amount than the balance stated in the funding agreement, typically because the settlement proceeds, after accounting for attorney fees, case costs, and any medical liens, would leave the client with little or nothing if the full funding balance were paid. This mirrors the long-standing practice of negotiating down medical liens at settlement, and many funders will agree to accept a reduced payoff — sometimes a return of principal with a portion of accrued fees waived, sometimes a fixed percentage reduction — specifically to preserve the relationship with the referring attorney and to avoid the reputational and, in some cases, ethical exposure that comes from a settlement disbursement leaving the client with a negative or negligible net recovery. Reduction requests are not guaranteed, and a funder's willingness to negotiate typically depends on the size of the shortfall, the attorney's history of referring business, and whether the funder itself was reasonably conservative in the original advance relative to the case's realistic value. Some states have moved toward requiring funders to reduce balances that would otherwise leave a client with zero or negative net recovery, treating an uncompromising insistence on full payoff in that circumstance as inconsistent with the non-recourse, consumer-protective framing the industry relies on for its regulatory treatment. More →

A simple fee structure is a pre-settlement funding pricing model in which the periodic fee is calculated only on the original principal advanced, not on any previously accrued fees, so the total repayment obligation grows linearly rather than at an accelerating rate over the life of the advance. A funder using a simple structure might charge a fixed percentage of the original advance for each defined period the case remains open, meaning a case that takes twice as long to resolve costs the claimant roughly twice the accrued fee rather than a compounded multiple of it. Several states that regulate consumer legal funding by statute either mandate simple, non-compounding pricing outright or make it the effective market standard by requiring disclosure tables that make compounding's cost trajectory unattractive to consumers once clearly displayed. Because simple fee structures are more predictable and generally produce a lower total repayment obligation on longer-running cases than compounding structures at the same nominal rate, they have become the pricing model most commonly marketed as consumer-friendly, and some funders differentiate their offering primarily on this basis rather than on advance speed or amount. The tradeoff for funders is that simple pricing recovers less on cases that run unexpectedly long, which pushes some funders toward more conservative funding caps or shorter-duration case selection to manage that risk. More →

Stacking is the practice of a claimant obtaining pre-settlement funding advances from two or more separate funding companies against the same case, either simultaneously or sequentially, without necessarily paying off the earlier advance before taking the new one. Because each funder's assignment of proceeds attaches to the same limited pool of settlement funds, stacking creates a priority problem: absent clear agreement on lien position, multiple funders can have overlapping claims to proceeds that may not be sufficient to satisfy all of them in full, particularly once attorney fees, case costs, and medical liens are also deducted from the same settlement. Reputable funders screen for existing advances during underwriting specifically to avoid unknowingly stacking behind an undisclosed prior lien, and many require the claimant and attorney to disclose all existing funding relationships as a condition of approval, treating a discovered but undisclosed prior advance as grounds for denial or rescission. Stacking is a particular concern in consumer legal funding because, unlike a mortgage or auto loan where lien position is recorded in a public registry, there is generally no central database of pre-settlement funding liens, leaving disclosure largely dependent on the claimant's and attorney's candor. Some states have proposed or enacted disclosure requirements specifically aimed at reducing stacking risk, but no state currently operates a public lien registry comparable to those in secured lending. More →

A state licensing requirement obligates a company offering pre-settlement funding to register with a state financial regulator — commonly the state's department of financial institutions, banking, or consumer affairs division — before soliciting or funding consumers in that state, and often to maintain a surety bond, minimum capital, or periodic reporting as a condition of the license. Licensing regimes for consumer legal funding are less uniform and less mature than mortgage or consumer lending licensing, and in many states no dedicated license exists at all, leaving the product to operate under general contract and non-recourse assignment principles rather than under regulatory supervision. Where licensing does exist, it typically comes bundled with the disclosure and non-recourse requirements of that state's Consumer Legal Funding Act, and regulators use license renewal and examination authority to enforce compliance with fee caps, disclosure formats, and prohibitions on unlicensed brokering by intermediaries who refer consumers to funders for a fee. For multistate funders, licensing creates a compliance map that has to be maintained separately from underwriting — a company can be well capitalized and well underwritten and still be barred from operating in a given state simply because it has not obtained or renewed the required license there. More →

A structured settlement factoring transaction is the sale, in whole or in part, of a payee's right to receive future periodic payments under a structured settlement, in exchange for a discounted lump sum paid by a factoring company. Structured settlements themselves arise when an injury claim resolves with the defendant's insurer agreeing to fund an annuity that pays the claimant over time — often for medical or income-replacement needs — rather than paying a single lump sum, generally to provide tax-advantaged, disciplined long-term income. A factoring transaction lets the payee monetize some or all of those future payments immediately when a need arises that the structure was not designed to address, at a cost reflected in the discount between the payments' face value and the lump sum paid. Because structured settlement payments are typically protected from the payee's creditors and were designed with tax advantages that depend on the periodic payment structure remaining intact, federal and state law impose specific procedural requirements — most importantly advance court approval — before a factoring company can purchase the payment stream. The transaction is legally and functionally distinct from a plaintiff cash advance: it monetizes an already-resolved settlement's future payment stream rather than a still-pending claim's uncertain outcome, and it involves a completed, quantifiable payment obligation rather than litigation risk. More →

A Structured Settlement Protection Act (SSPA) is state legislation, adopted in some form by every U.S. state and the District of Columbia, that requires a payee seeking to sell future structured settlement payment rights to obtain advance approval from a state court before the transfer can proceed. The typical SSPA requires the factoring company to give the payee written disclosure of the discount rate, the effective annual interest rate implied by the transaction, and the difference between the payments' total value and the lump sum offered; requires that the payee receive, or knowingly waive in writing, independent professional advice; and requires the court to find the transfer is in the payee's best interest — and, where the payee has dependents, in the best interest of those dependents as well — before entering an approval order. These state statutes work in tandem with the federal excise tax under Internal Revenue Code Section 5891, which imposes a substantial tax on the factoring discount in any transaction not approved by a qualified order issued under a state SSPA, giving factoring companies a powerful financial incentive to obtain court approval rather than attempt an unapproved transfer. Courts reviewing SSPA petitions have denied or modified transfers where the discount rate was found excessive, where the payee's stated need was not credible or was better served by a smaller transfer, or where the disclosure requirements were not properly met. More →

The usury exemption is the legal basis on which properly structured pre-settlement funding avoids classification as a loan subject to a state's maximum interest rate caps, resting on the argument that the transaction is a conditional sale of a contingent asset — the claimant's future proceeds — rather than an extension of credit that must be repaid regardless of outcome. Courts and legislatures have generally accepted this characterization where the transaction genuinely shifts the risk of loss to the funder: if the case fails, the claimant owes nothing, which is fundamentally different from a loan where repayment is owed regardless of any external contingency. Several states have codified this exemption directly through their Consumer Legal Funding Acts, explicitly stating that a qualifying non-recourse advance is not a loan and is not subject to the state's usury statute, while in states without such legislation, funders and their counsel rely on judicial precedent treating non-recourse funding as distinguishable from lending. The exemption is not automatic or self-executing — a transaction with recourse features, a fixed repayment date regardless of case outcome, or personal guarantees can lose the exemption and be recharacterized as a usurious loan, which is why funding agreement drafting treats usury risk as a central design constraint rather than an afterthought. More →