Pre-Settlement Funding Massachusetts: Laws, Costs, and S.680

Pre-settlement funding in Massachusetts is a cash advance against your expected settlement or judgment, repaid only if you win. The arrangement is non-recourse: lose the case and you owe nothing. Massachusetts has no statute specifically regulating these advances, though the state’s highest court cleared the legal path for them in 1997 and a bill now pending in the legislature would impose a rate cap and licensing requirements for the first time.

How the Advance Works

You apply to a funding company while your lawsuit is pending. The funder contacts your attorney, reviews the strength of the claim, the likely damages, and whether the defendant can pay. Your credit score and employment are irrelevant. The case itself is the collateral.¹

If approved, you get an offer with the advance amount and the cost terms. Money typically arrives within 24 to 48 hours of signing. Advances usually run 10 to 20 percent of the case’s expected settlement value.² There are no monthly payments. When your case resolves, your attorney pays the funder its principal, fees, and interest directly out of the proceeds.¹

You must be represented by a lawyer, because funders need case documents to evaluate the claim.³ Most civil cases with a plausible monetary recovery qualify: personal injury (car accidents, slip-and-fall, construction accidents, dog bites, premises liability), medical malpractice, workers’ compensation and third-party workplace injury, product liability and pharmaceutical cases, wrongful death, employment disputes (wrongful termination, discrimination, wage claims, whistleblower actions), police brutality, sexual harassment or assault, breach of contract, legal malpractice, and mass tort litigation.¹

What It Costs

This is where plaintiffs get hurt if they aren’t paying attention. Industry rates for consumer litigation funding typically run between 24 and 60 percent annually, depending on the case and the company.⁴ Some companies quote monthly rates of 2 to 4 percent, sometimes on a flat (non-compounding) basis.⁵ Others compound monthly and tack on a separate success fee.

A worked example shows how fast the number grows. Take a $25,000 advance at 3 percent monthly compound interest with a 40 percent success fee. On an 18-month case, the interest comes to roughly $21,450 and the success fee adds about $18,580, for a total repayment near $65,000. That is more than two and a half times the original advance.⁴

Before you sign, ask the funder in writing whether the interest is simple or compound, how often it compounds, whether there is a success fee or any other fee added on top of interest, and what the total payoff would be at 6, 12, 18, and 24 months. The difference between offers can be tens of thousands of dollars on a mid-sized case.

How It’s Different From a Loan

A personal loan requires a credit check and income verification, and you make fixed monthly payments regardless of what happens in court. Miss payments and your credit score takes the hit; the lender can pursue collection.⁶

Pre-settlement funding is the opposite on every point. No credit check. No income requirement. No monthly payments during the years the case may take. The advance does not appear on your credit report. And if you lose, the funder absorbs the loss and has no right to go after your assets.⁶ You pay for that risk shift through much higher effective interest than a bank would charge.

The Legal Protections You Have Right Now

Saladini v. Righellis

The legal foundation sits in a 1997 Supreme Judicial Court case, Saladini v. Righellis, 426 Mass. 231. The court abolished the old common law doctrines of champerty, barratry, and maintenance, which had banned outsiders from financing someone else’s lawsuit. The court concluded that litigation now serves “a socially useful way to resolve disputes” and that modern safeguards against frivolous cases made the old rules unnecessary.⁷

The ruling did not hand funders a blank check. The court said financing agreements will still be “scrutinize[d] with care” and can be struck down if the terms are unfair or unreasonable. Judges look at the parties’ relative bargaining positions, whether the plaintiff understood the terms, and whether the funder’s share of the recovery is disproportionate.⁷ That after-the-fact fairness review is the main judicial check on these contracts in Massachusetts.

The Usury Cap and Its Open Question

Massachusetts criminal usury law caps interest on loans of money at 20 percent per year. A violation carries up to 10 years in prison and fines up to $10,000. Whether that cap reaches pre-settlement funding has not been definitively resolved. Funders generally argue it does not, because the agreements are structured as non-recourse purchases of a contingent interest in future proceeds rather than traditional loans. The statute itself does not mention litigation funding.⁸ The ambiguity remains unsettled.

No Licensing Regime

As of mid-2026, the Massachusetts Division of Banks does not license or register litigation funding companies. It regulates mortgage professionals, consumer finance companies, debt collectors, check cashers, and money transmitters, but not litigation funders.⁹ No state agency currently examines their books, limits their fees, or enforces disclosure standards.

What S.680 Would Change

Senate Bill 680, “An Act to provide transparency in third party litigation financing,” was filed by Senator Nick Collins. The Committee on Financial Services gave it a favorable report and referred it to Senate Ways and Means in January 2026. No further floor action had been taken as of June 2026.¹⁰

If enacted, the bill would do the following:

Cap total charges on consumer litigation funding at 36 percent per year; anything above that would be usurious under existing criminal law.¹¹
Require consumer and commercial funders to register with the Division of Banks, which would get authority to set fees, require bonds, and issue rules.
Give consumers 10 business days to rescind a funding contract without penalty.
Make prepayment penalty clauses unenforceable.
Bar funders from influencing litigation strategy or settlement decisions, which would stay “solely with the consumer and the attorney.”
Require your attorney to sign a written acknowledgment confirming they reviewed the disclosures with you, are working on contingency, and are not getting a referral fee from the funder. Attorneys with a financial interest in the funding company would be barred from the transaction.
Require plaintiffs or their attorneys to notify opposing parties and insurers of a consumer funding agreement within 30 days of signing.¹¹

Until S.680 or something like it becomes law, your protections are the general fairness standard from Saladini, broad consumer protection law, and whatever terms you negotiate in the contract itself.

Taxes

The IRS generally treats a non-recourse pre-settlement advance as debt, not income. The money is not taxable when you receive it and does not go on your tax return.¹² In physical-injury cases such as car crashes, slip-and-fall, and medical malpractice, the underlying settlement is typically tax-exempt under federal law, and funding used for living expenses or medical bills during the case generally stays non-taxable too.¹³

The IRS has not issued comprehensive guidance on litigation funding, and tax professionals continue to debate how certain transactions should be classified.¹⁴ Using advance funds for investment purposes could trigger taxable gains. Massachusetts has no state-specific rules on how these advances are taxed. If the amount is large enough to matter, talk to a tax professional before and after you receive it.

1
MyLawFunds. Massachusetts Pre-Settlement Funding
2
Annuity.org. Pre-Settlement Funding
3
Rockpoint Legal Funding. Massachusetts Legal Funding
4
Amicus Capital Group. Litigation Funding Cost Calculator Guide
5
Tribeca Lawsuit Loans. Our Interest Rates
6
Rockpoint Legal Funding. Legal Funding vs Personal Loans
7
FindLaw. Saladini v. Righellis, 426 Mass. 231
8
General Court of Massachusetts. General Laws Chapter 271, Section 49
9
Massachusetts Division of Banks. Division of Banks Licensee Information
10
General Court of Massachusetts. S.680 Bill Details
11
General Court of Massachusetts. S.680 Full Text
12
Tribeca Lawsuit Loans. Pre-Settlement Funding and Tax Implications
13
Rockpoint Legal Funding. Settlement Funds Taxable
14
Federal Bar Association. FBA Submission on Litigation Finance Tax Treatment