Originally from Handbook on Third-Party Funding in International Arbitration, Second Edition

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PART I.  THE THIRD-PARTY FUNDING LANDSCAPE

1.  Regulation of TPF

1.1.  Are there any laws dealing with TPF or the regulation of Funders?

Illinois adopted the Consumer Legal Funding Act, in 2022, which regulates Funders in relation to claims brought by consumers. There are no statutes that directly speak to the regulation of third-party funding or funders in Illinois in the non-consumer, commercial context.

In Illinois, Third-Party Funding of consumer claims is subject to the Consumer Legal Funding Act (“CLFA”).   Enacted in 2022, the CLFA imposes significant statutory regulations on third-party funding of consumer claims, including licensing and contractual requirements, limits on funding fees, prohibitions on funder control of litigation and settlement decisions, preclusions of certain activities by funders such as lawyer and medical referrals, and provisions concerning attorney-client privilege and the work product doctrine. 

The CLFA requires a consumer legal funding company  to obtain a license.   The failure to obtain a license is punishable as a felony.   Under the CLFA, a consumer is accorded various rights, such as the right to cancel a contract with a funder within 14 business days.   The terms of the funding arrangement must be spelled out in detail in the contract.   Funders may not pay commissions or referral fees to attorneys or law firms for referring a consumer to the funder.   Funders also may not refer a consumer to a specific attorney or law firm. 

Consumer legal funders may not exercise control over the conduct of legal claims or over any settlements; rather, the right to make such decisions must remain solely with the consumer and his or her attorney.   Also, the CLFA protects communications between a funding company and the consumer’s attorney. Communications between a funder and counsel for a consumer do not waive the attorney-client privilege or the work product doctrine.   In addition, violations of the CLFA may subject a funder to fines and license suspension or revocation.   Violations of the Act also may give rise to claims under the Illinois Consumer Fraud and Deceptive Business Practices Act.