States Move to Regulate Third-Party Litigation Funding Amid Transparency Concerns

States across the country are intensifying efforts to regulate third-party litigation funding (TPLF), a fast-growing financial practice that has drawn scrutiny for its lack of transparency and potential impact on insurance costs. TPLF involves outside investors funding lawsuits in exchange for a portion of any settlement or judgment. Once dominated by specialized firms, the practice has attracted multi-billion-dollar investment companies, with U.S. litigation funding estimated to reach $30 billion by 2028, according to Swiss Re.

In response to rising litigation costs and the potential influence of undisclosed funders on legal proceedings, lawmakers in 35 states have introduced bills this year to increase disclosure requirements. Georgia and Kansas have already passed such measures, while other states — including Arizona, California, Massachusetts, New Jersey, and Oklahoma — are advancing similar legislation through their statehouses.

At the federal level, the U.S. House of Representatives is considering the Litigation Transparency Act of 2025, which would require disclosure of third-party litigation funding in federal cases. This legislative momentum reflects growing concern about legal system abuse and the downstream effects of TPLF on the affordability and availability of insurance products, particularly in the commercial auto sector.

While regulation of TPLF is gaining traction nationwide, the debate highlights the delicate balance between access to justice and protecting the integrity of the legal process from undisclosed financial interests.