Pre-settlement funding gives an injured person cash now in exchange for a slice of a future settlement. It is not technically a loan, because repayment comes only from the recovery. As of January 1, 2026, California regulates these transactions under the Consumer Legal Funding Act, which requires plain-language contracts, itemized cost disclosure, and a five-business-day cancellation right.
B&D Injury Law Group represents injured people across California. This article explains how these advances work, what the new California law requires, and what to check before signing one.
What Pre-Settlement Funding Actually Is
A funding company advances money against a pending injury claim. If the case resolves, the company is repaid out of the proceeds, along with charges that accrue over the time the money is outstanding. If the case produces nothing, the company generally receives nothing.
That last feature is what distinguishes these arrangements from loans. California’s statute defines consumer legal funding as a nonrecourse transaction in which a company purchases, and a consumer assigns, a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award or verdict.
Because there is no absolute obligation to repay, these advances are generally treated as falling outside usury law, which requires a loan or forbearance with an unconditional repayment duty. California courts have not squarely resolved that characterization for consumer legal funding, and other states have gone the other way, so it is more accurate to describe this as the prevailing rationale than as settled California law.
California Now Regulates This, as of 2026
This is the part most articles have not caught up to. Until recently, California had no statute specifically governing consumer legal funding. That changed with Assembly Bill 931, chaptered in October 2025, which created the California Consumer Legal Funding Act at Business and Professions Code sections 6250 and following. It took effect January 1, 2026.
The core requirements:
A written contract in plain English. Section 6251 requires the agreement to be written so the average consumer can read and understand it.
Itemized disclosure of every charge. Section 6252 requires disclosure of the funded amount, itemized charges, the maximum amount assigned, and the repayment schedule. The statute defines charges broadly to include all administrative, origination, underwriting or other fees, including interest, no matter how denominated. That phrase is aimed squarely at the practice of relabeling interest as a fee.
Predetermined amounts on a schedule. Section 6253 requires repayment to be a predetermined amount tied to time intervals rather than a percentage of whatever the recovery turns out to be.
A five-business-day cancellation right. You may cancel without penalty within five business days if you return the money you received.
No referral fees to attorneys. Section 6254 prohibits a funder from paying commissions, referral fees, or other consideration to attorneys, and requires an attorney acknowledgment confirming no referral fee changed hands.
No control over your case. A funder may not acquire any right to decisions about the conduct of the underlying claim. It cannot direct strategy, veto a settlement, or require you to change lawyers.
Remedies include voiding the contract and statutory damages of $10,000 per violation.
One point deserves care: the Act regulates structure and disclosure. It does not appear to impose a rate cap. An earlier bill, SB 581 in the 2023-24 session, would have capped charges at 36 percent annually, and it died in February 2024. Do not assume there is a ceiling on what these advances cost.
What It Costs
We are not going to publish an average rate, because there is no neutral, checkable source for one. Every figure circulating online traces back to funding companies’ own marketing pages.
What can be said with confidence is structural. Charges accrue over time, which means the cost is driven by how long your case takes, and injury cases frequently run longer than anyone predicts at the outset. Because the Act now requires the total and the repayment schedule to be disclosed up front, you can and should ask for the total repayable at 6, 12, 24 and 36 months, in dollars, before signing anything. Comparing those four numbers against the advance tells you more than any advertised rate.
For context on how large the gap can be, the legislative analysis behind AB 931 recounted a constituent who ended up repaying 100 percent of his financing in charges, on top of the amount financed. That is one legislative anecdote rather than an industry average, but it illustrates why the disclosure requirement exists.
Why Your Lawyer Cannot Simply Lend You the Money
People often ask why the firm cannot advance living expenses instead. California Rule of Professional Conduct 1.8.5 answers it. A lawyer may not directly or indirectly pay or agree to pay the personal or business expenses of a prospective or existing client.
There are exceptions, and they explain the boundary. A lawyer may advance the costs of prosecuting a claim, with repayment contingent on the outcome, which is why firms front the cost of records, experts and filing fees. A lawyer may, after being retained, lend money on the client’s written promise to repay, subject to conflict-of-interest and business-transaction rules. And a lawyer may pay costs to protect the interests of an indigent person.
What a lawyer may not do is pay a client’s rent or groceries to obtain or keep the representation. That prohibition is precisely the gap third-party funders exist to fill.
The Ethics Issues Your Lawyer Is Thinking About
The State Bar addressed litigation funding in Formal Opinion No. 2020-204. Its central conclusion is that the lawyer must provide independent professional judgment not shaded by a third party with an interest in the outcome.
Several practical concerns follow. Confidentiality is the sharpest. Funders typically want case materials to underwrite the advance, and sharing privileged material or attorney work product with a third party can risk waiver. Your lawyer will be careful about what leaves the file and will want your informed consent before anything does.
There is also a settlement-pressure problem that runs in both directions. An outstanding advance that grows monthly can push a client toward accepting less to stop the meter, or push against a reasonable settlement that would leave little after repayment. Neither is a good position, and both are worth discussing with your lawyer before you sign rather than after.
Questions To Ask Before You Sign
Ask for the total repayable in dollars at 6, 12, 24 and 36 months. Ask whether charges continue to accrue after some cutoff. Ask whether the amount assigned is capped at a stated maximum. Ask what happens if the recovery is less than the amount owed, and get the nonrecourse promise in writing. Ask whether any fee was paid to anyone for referring you.
Then ask a different question entirely: is there another way through the next few months? Medical providers will sometimes treat on a lien. Health insurance, disability coverage, or med-pay on an auto policy may cover expenses you assumed were not covered. State disability benefits may be available. These options cost far less than an advance, and clients frequently do not realize they qualify.
Is a pre-settlement advance a loan?
Not in the ordinary sense. California defines it as a nonrecourse transaction in which you assign a contingent right to part of a future recovery. If the case produces nothing, you generally owe nothing. Because there is no absolute repayment obligation, these advances are generally treated as outside usury law, though California courts have not definitively resolved the question.
Does California regulate lawsuit funding?
Yes, as of January 1, 2026. The California Consumer Legal Funding Act, at Business and Professions Code sections 6250 and following, requires plain-language contracts, itemized disclosure of all charges, a repayment schedule, a five-business-day cancellation right, and bars funders from paying referral fees to attorneys or controlling your case.
Can the funding company force me to settle?
No. The Act prohibits a funder from acquiring any right to decisions about the conduct of your claim. It cannot direct strategy, force a settlement, or require you to change attorneys.
Can my attorney lend me money instead?
Only in narrow circumstances. Rule of Professional Conduct 1.8.5 bars a lawyer from paying a client’s personal expenses. A lawyer may advance litigation costs with repayment contingent on the outcome, and may lend money after being retained on a written promise to repay, subject to additional rules.
What if I cancel after taking the money?
The Act gives you five business days to cancel without penalty if you return the disbursed funds. Confirm the mechanics in your contract, because the cancellation must generally be effective within that window.
If you are considering an advance because a case is dragging, it is worth asking your lawyer about the timeline first. Learn more about personal injury claims, read about insurance claim disputes, or contact B&D Injury Law Group for a free consultation.
This article is provided for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship. Every case is different and past results do not guarantee a similar outcome. If you have been injured, speak with a licensed attorney about your specific situation.