Key Takeaways:
- North Carolina enacted a law prohibiting many forms of outcome-contingent litigation investment on June 22, 2026.
- The law preserves exceptions for contingency fees, noncontingent loans, personal living expenses, nonprofit assistance, and certain family support.
- South Carolina has not enacted a comparable ban, but a pending bill would regulate certain consumer legal funding agreements.
- Any South Carolina reform could affect how injury cases are financed, disclosed, and managed.
On June 22, 2026, North Carolina’s governor signed the Prohibit Litigation Investments Act, creating new restrictions on outcome-contingent litigation investment. The law prohibits many arrangements in which an outside party funds litigation fees, costs, or expenses, and repayment or other compensation depends on the outcome.
The law does not apply to cases filed in South Carolina, but it raises questions that injured people should understand. A South Carolina accident lawyer can explain who controls settlement decisions, how case expenses are handled, and whether any outside financial interest could affect the claim.
Table of Contents
What Did North Carolina Just Ban?
Third-party litigation funding generally involves a person or company that is not a party to the lawsuit providing money to a litigant or law firm in return for compensation tied to the outcome. In a nonrecourse arrangement, the funder generally receives payment only if the case produces a recovery, although the precise terms vary by contract.
What Qualifies as a Litigation Investment
North Carolina's new law defines “litigation investment” as funding for fees, costs, or expenses related to a pending or potential civil proceeding when repayment or other consideration is contingent in any respect on the result. The law applies to civil actions, arbitrations, mediations, administrative proceedings, and other proceedings used to resolve civil legal claims.
A prohibited contract is void, and a court may impose a civil penalty of up to $50,000 for each violation in an enforcement action brought by the Attorney General. A person injured by a violation may also bring a civil action seeking actual damages, court costs, and reasonable attorney fees.
Notable Exceptions
North Carolina’s law does not prohibit:
- Traditional contingency-fee agreements
- Attorneys advancing permissible case costs
- Insurer defense and indemnity obligations
- Loans whose repayment does not depend on the case outcome
- Certain funding or assistance from qualifying nonprofit organizations
- Funding for personal or household expenses
- Some financial support from immediate family members
Its central prohibition targets funding used for litigation fees, costs, or expenses when the funder’s repayment depends on the outcome of the proceeding.
Why Did North Carolina Take This Step?
Supporters argued that litigation investments may create competing financial incentives, increase costs, prolong disputes, and introduce an outside financial interest into litigation. Business groups supporting the law raised concerns about transparency, litigation costs, foreign funding, national security, and the protection of intellectual property.
Opponents argued that some litigation financing can help law firms pursue expensive cases and improve access to the civil justice system. North Carolina’s final law, however, excludes qualifying funding used for a litigant’s personal or household expenses.
Where Does South Carolina Stand?
South Carolina has not enacted a comparable prohibition. H. 4521, the proposed South Carolina Transparency in Consumer Legal Funding Act, would regulate certain nonrecourse consumer funding agreements through registration, disclosure, contract, and consumer-protection requirements. The bill remains in the House Judiciary Committee and has received no recorded vote.
Recent civil justice legislation across the Southeast shows that states are taking different approaches to litigation costs, funding, disclosure, and liability. South Carolina is not immune to that trend.
What Would a South Carolina Ban Mean for Injury Victims?
A South Carolina law could affect different funding arrangements in different ways, so the impact would depend on how broadly lawmakers defined the prohibited or regulated conduct.
The Argument for a Ban
When an outside investor’s repayment depends on the outcome, its financial preferences may differ from the client’s needs regarding timing, risk, and settlement. Supporters argue that restricting outcome-contingent litigation investment could reduce the risk that an outside funder’s financial expectations influence case strategy or settlement timing.
A contingency fee gives the lawyer and client a shared financial interest in obtaining a recovery, although the client may also weigh timing, privacy, risk, medical needs, and other personal considerations.
The Argument Against a Ban
Some medical malpractice and product liability claims require substantial upfront spending on expert review, investigation, discovery, and trial preparation. Opponents argue that law-firm financing can help support these resource-intensive cases. Consumer funding may also help some injured people cover living expenses during a lengthy claim, although North Carolina’s law excludes qualifying personal and household expense funding from its central prohibition.
What Pracht Injury Lawyers Believes
Whatever approach South Carolina ultimately takes, we believe the underlying principle should remain clear: decisions in your personal injury case should reflect your circumstances and goals, not the financial expectations of an institution that does not owe you the same professional duties as your attorney. Pracht Injury Lawyers does not use an outside litigation funder whose repayment depends on the outcome of a client’s case or whose financial expectations influence case decisions.
Our approach reflects the belief that settlement authority should remain with the client and that legal strategy should be guided by the attorney’s independent professional judgment.
South Carolina has not yet decided whether or how to regulate consumer legal funding. Injury victims should follow these developments because future legislation could affect how funding agreements are structured, what information must be disclosed, and which protections apply in personal injury cases.