The Evolution of Pre-Settlement Funding: History, Regulation, & Access to Justice

Reading Time: 7 minutes
access to justice with pre-settlement funding

After a personal injury, people often have trouble meeting their needs. With mounting expenses such as medical bills for injury treatments, utility bills, groceries, rent, mortgage payments, and other day-to-day expenses, life doesn’t get better. While attorneys play a crucial role in helping clients seek compensation for their injuries, they are ethically prohibited from offering any financial assistance to those they represent in most states.

Pre-settlement funding, also known as a lawsuit loan, has been a fast-growing industry in the US since the 1990s and is now an important part of the legal system. It empowers underprivileged victims to receive much-needed support during a pending lawsuit. It can be beneficial for plaintiffs as they can avoid being taken advantage of by insurers when settlements are delayed, and offers are too low.

Key takeaways:

  1. In the U.S. legal system, pre-settlement legal funding provides financial assistance to vulnerable accident victims during the course of litigation.
  2. Ancient Greece and Rome introduced the concept of litigation funding, which has evolved over time to become an essential tool for achieving justice.
  3. Pre-settlement funding is non-recourse legal funding. That means the lender provides you an advance based on the merits and value of your case, not your finances.
  4. Pre-settlement funding can be expensive due to the high risk involved in lawsuits and because repayment is only required if the case is won or settled.
  5. In most states, legal funding is not regulated. Nevertheless, few states require lenders to charge rates like banks, which restricts access to funds. Legal reform may be needed.

How did pre-settlement legal funding originate?

Litigation funding, or pre-settlement legal funding, traces its roots back to ancient civilizations, evolving significantly over the centuries. Originally seen in forms such as ‘champerty and maintenance’ during medieval times in England, wealthy nobles would finance lawsuits of others in exchange for a portion of the awarded property. This practice, however, was not without its criticisms—viewed as aggressive and often condemned by the Church as promoting discord.

Despite its controversial beginnings, the concept of funding litigation has transformed into a vital tool for justice. Modern legal funding operates under stringent legal and ethical standards, designed to ensure fair access to justice without the exploitative risks historically associated with these arrangements. This evolution reflects a broader commitment to maintaining the integrity and fairness of the legal system.

Addressing Criticisms and Ethical Considerations of Pre-Settlement Legal Funding

While pre-settlement legal funding plays a crucial role in enabling justice by alleviating financial barriers, it is not without its criticisms and ethical considerations. Critics argue that such funding can sometimes lead to frivolous lawsuits, as it might encourage litigants to pursue claims that have minimal chances of success merely because they do not bear the immediate financial risks. However, it is important to note that litigation funding companies invest significant resources in evaluating the merits of each case before providing funding. No investor would commit substantial amounts of money to support lawsuits without a strong likelihood of success. This vetting process inherently discourages the support of frivolous claims.

While there are concerns that pre-settlement legal funding could prolong legal disputes, as financial backing might incentivize parties to reject reasonable settlements in hopes of achieving larger payouts, it’s important to scrutinize the validity of these arguments. Critics, often influenced by entities like insurance companies, argue that litigation financing unduly extends legal proceedings. However, this perspective overlooks the fundamental economic and ethical dynamics at play.

Insurance companies are known to exploit the financial vulnerabilities of injured parties by offering settlements that are far below fair compensation for serious injuries. By doing so, they take advantage of plaintiffs who, due to financial strain, might not have the means to sustain prolonged legal battles. Pre-settlement funding mitigates this imbalance by providing plaintiffs the necessary resources to continue their fight for justice without being pressured into accepting lowball offers.

Furthermore, litigation finance companies conduct thorough evaluations of the cases they choose to fund, investing only in those with a strong likelihood of success and fair compensation. This careful vetting process serves as a natural filter against the funding of frivolous claims or the encouragement of unreasonable payout expectations.

In reality, pre-settlement funding often helps streamline the legal process by ensuring that plaintiffs have the means to cover living and medical expenses while awaiting a just resolution. Rather than prolonging lawsuits, it levels the playing field, allowing individuals to pursue their legal rights to the fullest extent. The challenge for the legal system is not so much the existence of litigation funding but ensuring it continues to operate transparently and ethically.

What is pre-settlement funding today?

Pre-settlement funding is a type of financing that’s available to plaintiffs who are involved in a lawsuit and are waiting for a settlement or award. It provides them with a cash advance on the potential lawsuit settlement or verdict they may receive in the future. This allows you to cover living and medical expenses while your lawsuit is pending. Lawsuit funding can help maximize a settlement. It avoids settling too quickly for an amount that may be lower than what you deserve.

For instance, consider the case of a single mother from New York who was involved in a car accident. While waiting for her personal injury lawsuit to settle, she struggled to pay her medical bills and support her children. Pre-settlement legal funding provided her with the financial relief she needed to cover her expenses without having to settle her case prematurely for a lower amount.

With lawsuit funding, you get access to emergency cash quickly and without the hassle of applying for a traditional loan. The money is typically available within 24-48 hours of applying. These advances are also “non-recourse”. You are only required to repay the funds if and when you win or settle your case.

How does pre-settlement funding work?

Unlike any type of traditional financing, all pre-settlement funding loans are non-recourse transactions. The lender will decide to provide you with an advance based on the merits of your case and not your financial standing. With a lawsuit loan, you don’t need to prove your credit or employment history.

Some of the cases that qualify for funding are:

Qualification varies between lenders, but it generally requires:

  • Having an attorney with a contingency fee arrangement;
  • Your attorney has to be willing to provide the requested documents and information about your case;
  • A viable claim worth over $50,000;
  • A defendant who can pay damages like one who has insurance coverage;
  • Be 18 years of age or older.

How to get pre-settlement legal funding.

When you apply for pre-settlement legal funding, you need to provide basic information about your case. Afterward, the lender will get in touch with your attorney to evaluate your legal claim and its value. Once the lender has established your eligibility, you’ll receive a proposal indicating the amount you have been approved for.

If you accept the loan offer, you will receive a non-recourse lawsuit funding agreement that you and your lawyer need to sign. The funding contract contains your lawsuit loan amount plus the interest rate. When the agreement is complete, the lawsuit cash advance is available within 24 hours. Then, once you receive your settlement, your attorney can repay the lender with a portion of the settlement funds.

Fees and interest rates.

Pre-settlement legal funding companies impose higher rates compared to those from traditional loans. That’s because all lawsuits entail high risks, and there are no guarantees of victory in litigation. Additionally, many lenders also charge additional fees. As such, before taking out a lawsuit loan, you should be aware of all applicable costs and factor them into your decision.

While you aren’t obligated to repay a settlement advance unless you win your case, the fees and interest rates can be quite high. Consider weighing the pros and cons before committing to a settlement advance.


A lawsuit loan fee is a charge that lenders require you to pay after you receive compensation from your claim. It’s a one-time fee calculated as a percentage of the total amount you borrow, varying from 5% to 15% with most lenders.

Interest rates

The interest rate costs in pre-settlement funding also vary from lender to lender. Generally, you’d get a charge anywhere between 2.95% and 4.5% per month, either compounding or simple.

In contrast, companies like Baker Street Funding charge non-compounding rates on all lawsuit loans. They start at 2.95% to 3.4% per month, with added protection, with all charges ending in the third year of the agreement.

Important factors about pre-settlement legal funding regulations and the need for reform.

Pre-settlement legal funding, due to its “non-recourse” nature, typically falls outside the scope of federal laws. This type of funding isn’t subject to state regulations in most jurisdictions because it is not a loan. Unlike traditional loan institutions, there is no repayment if the case is lost.

However, few states have enforced usury laws on pre-settlement funding. That means that funding companies must charge rates like banks. The problem with making non-recourse funding rates like a bank is that the lender shoulders the high risk of not getting repaid.

While the original purpose of these rules is to protect consumers, it instead has the opposite effect. When a state regulation mandates lenders to charge between 18% and 24% APR, they don’t provide their services in those states. As a result, these restrictive usury laws governing legal funding pose significant challenges for injured victims and ultimately create an unequal and often unfair playing field.

Insurance companies can hire the best attorneys. They know victims are unable to meet their basic needs and pressure them to settle for less. Unfortunately, these victims are the only ones who lose with those regulations. And insurance companies are the only ones who win.

Take the example of Luis, a construction worker from Kansas, where pre-settlement funding companies are required to charge rates like banks. Luis had a back injury that required surgery. After that, he couldn’t work and had many medical bills. While dealing with settlement delays, he reached out to several legal companies for help. But due to state regulations on lawsuit loans, they were unable to assist him. This left Luis in a difficult financial situation, pressuring him to accept a lower settlement from his employer’s insurance company just to keep his head above water.

This example is why it’s important to have access to legal funding, whichin fact promotes justice. It gives victims the ability to enforce their rights. They won’t have to accept a lowball settlement from the insurance due to financial pressure.

Some may argue that these laws are needed to stop predatory lawsuit lenders from taking advantage of plaintiffs, but the reality is that these laws are hurting plaintiffs. If we want justice, those laws need reform. Only then will the legal system be able to deliver, again, justice.

The takeaway.

Since ancient civilizations, pre-settlement legal funding has evolved into an integral part of the U.S. legal system. It empowers struggling victims to meet their living and medical expenses without compromising on what they rightfully deserve. By doing so, it makes possible the process of obtaining justice for those who cannot otherwise afford to do so.

As the industry expands, it is important to establish regulations that strike a balance between consumer protection and making legal funding more accessible.

If you’re in need of pre-settlement legal funding, always choose a reputable and trustworthy company. While there are numerous lenders to choose from, not all are created equal. Some will charge you an arm and a leg for their services, while others will offer reasonable rates.

Companies like Baker Street Funding offer non-compounding rates and ensure that charges end in the third year of the loan. We provide a more affordable and ethical solution for those in need.

If you need financial assistance after an accident and have exhausted all other possible sources of funding, a settlement loan from Baker Street Funding can be of great help. Get pre-settlement funding by applying today.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

See some of our settlement funding products

Learn more about pre-settlement funding

Select a legal funding service to get started. 

Attorney Requests

Lawsuit Loans

Litigation Funding

Personal Injury Loans

Settled Case Loans

Surgery Funding

Or just call us at 888.711.3599 to apply.