Legal
Usury
Usury is the charging of interest above a legally permitted maximum, and whether usury caps apply to litigation funding is a question courts have answered differently across states.
Where a court treats an advance as a loan, state usury and lending laws apply — which is the basis on which Colorado and Maryland regulate these products as consumer loans.
Where it is treated as a non-recourse purchase of a claim interest, usury caps generally do not apply because there is no unconditional obligation to repay.
This is the legal fault line running through the whole category, and it is why the state-by-state map looks the way it does.
Related terms
- Non-recourse — Non-recourse means an advance can be repaid only from a specific source — here, the proceeds of your case — and the person who received the money is not personally liable if that source produces nothing.
- Lawsuit loan — "Lawsuit loan" is the common search term for a pre-settlement advance, but it is not accurate — a genuine advance is non-recourse and creates no personal debt, while a loan is owed regardless of how the case ends.
- Recourse — Recourse is a lender's right to pursue a borrower personally for repayment — through wage garnishment, bank levies, collections or credit reporting — if the agreed source of repayment falls short.
Need the money rather than the definition?
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