Litigation financing measure becomes law, delivering win for Ariz. legal system

Arizona Gov. Katie Hobbs on Friday signed legislation establishing new requirements around third-party litigation financing, marking a win for an Arizona business community concerned about the increasing prevalence of outside funders driving up the costs of litigation.

The measure, SB 1215 sponsored by Sen. Vince Leach (R-SaddleBrooke), sets the stage for continued reform of lawsuit lending practices.

The new law targets a fast-growing industry that funds lawsuits in exchange for a share of potential settlements. While once viewed as a novel tool for legal access, critics say the practice has ballooned into an opaque, unregulated sector that distorts the legal system and even invites foreign interference in U.S. court cases.

“This is a smart, targeted reform that preserves access to justice while preventing abuses that can encourage expensive, unnecessary litigation and undermine fairness,” said Courtney Coolidge, executive vice president of the Arizona Chamber of Commerce & Industry. “SB 1215 is a small but important step toward protecting both consumers and the integrity of Arizona’s legal system. We’re proud to have helped lead a broad coalition in support of its passage. We appreciate Sen. Leach for his tremendous leadership, and we thank Gov. Hobbs for signing the bill into law.”

What the bill does

The new law governs “litigation financiers,” which it defines as individuals or entities that enter into agreements to receive compensation based on the outcome of a legal action or portfolio of related actions. Key provisions include:

• Ban on foreign adversaries: The bill prohibits litigation funding directly or indirectly financed by a “foreign entity of concern,” including entities affiliated with governments identified by federal authorities as national security threats or placed on terrorism or sanctions lists.
  
• Limits on control: Litigation financiers are barred from directing or influencing decisions in a case, including legal strategy, attorney selection, or settlements. Control remains solely with the named party and counsel of record.
  
• Referral fee disclosures: Any commission, referral fee, or consideration paid to attorneys or health care providers for referring a client must be disclosed in writing and separately acknowledged by the borrower before the agreement is executed.
  
• Conflict scrutiny in complex litigation: In class actions and multidistrict litigation, if there has been disclosure of litigation financing, courts must consider those arrangements and related conflicts when determining class counsel adequacy or appointing leadership roles such as lead counsel or steering committee members.
  
• Consumer safeguards: The law voids agreements made in violation of these provisions and authorizes enforcement by the attorney general or the parties involved. Knowingly violating the statute constitutes an unlawful practice under Arizona’s consumer fraud statutes.
  
• Exemptions: The bill excludes traditional loans not tied to litigation outcomes, funding from nonprofits supporting pro bono litigation, insurance indemnity arrangements, and limited receivables-based financing for medical providers.

Business community backs reform

The bill was championed by the Arizona Chamber, which led a broad business coalition that included the Arizona Manufacturers Council, Arizona Farm Bureau, Arizona Lodging & Tourism Association, Arizona Trucking Association, Southern Arizona Leadership Council, Arizona Food Marketing Alliance, Greater Phoenix Chamber, and major insurers and technology firms.

Their support stemmed from concerns over rising litigation costs, the influence funders might hold over the direction of litigation, and the risk of a growing role of out-of-state and foreign entities in Arizona courtrooms.

Stakeholders emphasized that unchecked lawsuit lending threatens legal fairness and undermines the predictability critical to a healthy business climate.

National momentum for reform

Arizona’s action reflects a growing national push for regulation of third-party litigation financing. Several states have enacted or introduced bills requiring disclosure or limiting foreign involvement. In Congress, bipartisan proposals have sought to mandate transparency in federal lawsuits, particularly in cases implicating national security.

Legal experts and policymakers warn that without regulation, lawsuit lending can prolong litigation, drive up damages, disincentivize settlements, and create hidden conflicts of interest.

What’s next

Business advocates say SB 1215 is only the beginning. Additional reforms gaining traction nationally are:

• Interest rate caps on litigation funding agreements to protect borrowers from predatory repayment terms;
  
• Licensing or registration requirements for litigation financiers operating in the state;
  
• Expanded consumer protections for individuals entangled in high-cost lawsuit loans.

“Arizona has joined a national movement on third-party litigation financing reform,” Coolidge said. “But we’re not done. We’ll continue to advocate for reforms that ensure fairness, transparency, and accountability in our legal system.”