Hunton Retail Law Resource

On June 22, 2026, North Carolina Governor Josh Stein signed House Bill 315, the “Prohibit Litigation Investments Act” (the “Act”), into law, making North Carolina the first state to ban third-party litigation funding. 

Third-party litigation funding, which has become increasingly common in class actions and mass tort matters, generally involves a non-party investor providing capital to a plaintiff or law firm in exchange for a share of any recovery. Proponents argue that these arrangements can expand access to justice by helping claimants pursue meritorious claims, while critics have raised concerns about transparency, ethics, and the influence of non-parties over litigation strategy and outcomes. 

The Act makes it unlawful for any person to engage in litigation investment in North Carolina or to provide litigation investment to a party or attorney involved in a civil proceeding in the state. The prohibition applies to all civil proceedings commenced on or after June 22, 2026, as well as to all litigation investment contracts entered into, renewed, or amended on or after that date. 

The Act defines “litigation investment” broadly as the provision of money – whether through a direct payment, advance, loan, investment, or other financial arrangement – to cover fees, costs, and expenses associated with a pending or potential civil proceeding in exchange for a right to receive compensation that is contingent, in whole or in part, on the outcome of the matter. The Act also defines “civil proceeding” expansively to encompass civil actions, arbitrations, mediations, administrative proceedings, and other proceedings intended to resolve civil claims. 

The Act contains nine exceptions that preserve several common and longstanding forms of litigation-related financial support. For example, the Act does not prohibit attorney contingency fee arrangements, advancement of litigation costs and expenses, or pro bono representation, in accordance with the North Carolina Rules of Professional Conduct. It likewise does not prohibit financial assistance provided by family members or certain funding arrangements involving nonprofit organizations pursuing claims on their own behalf or on behalf of their members. 

The Act provides robust enforcement mechanisms. The North Carolina Attorney General is authorized to bring an action to enjoin violations, and courts may impose civil penalties of up to $50,000 per violation. In addition, the Act creates a private right of action for individuals harmed by a prohibited litigation investment. A prevailing plaintiff may elect to recover either common law damages or statutory damages equal to three times the amount of the potential litigation investment contemplated by the funding arrangement. 

Although North Carolina is the first state to adopt an outright ban, other states have also moved to regulate third-party litigation funding. Some states, including Indiana, Ohio, Tennessee, Nebraska, Vermont, and Nevada, have generally approached litigation funding as a form of consumer finance. These laws typically require written agreements, disclosures, attorney acknowledgment, and limits on the funder’s control over the litigation. Other states, such as Wisconsin, Louisiana, and Washington, have focused more narrowly on transparency, including disclosure requirements at the outset of litigation. Finally, in early 2026, New York instituted a comprehensive regulatory framework for the third-party litigation funding industry that includes specific disclosure requirements, consumer rights, and limited recoveries by funders. 

At the federal level, the Litigation Funding Transparency Act was introduced in February 2026 and is currently pending before the Senate Judiciary Committee. If enacted, it would require disclosure of third-party litigation funding in certain federal matters, including class actions and mass tort cases, as well as all foreign funding. 

As third-party litigation funding continues to expand into a multibillion-dollar industry in the United States, state and federal efforts to regulate the space are likely to continue. North Carolina’s enactment of HB 315 is a significant development and may influence how other jurisdictions approach third-party litigation funding going forward, particularly in high-exposure matters such as class actions and mass tort litigation.