Litigation Financing Transparency Act: Illinois Curbs Third-Party Lawsuit Investments

The Litigation Financing Transparency Act is Illinois' answer to a rapidly growing and largely unregulated industry. Outside investors, not parties to a lawsuit, lend money to plaintiffs to cover legal costs. In return, they collect a share of any recovery. The practice now underwrites tens of thousands of cases annually against pharmaceutical companies, tech firms, food producers, and other large defendants. Illinois courts are no exception.

In 2026, a Seventh Circuit judge called a high-profile Chicago case involving litigation financier Burford Capital a "cautionary tale" about unchecked third-party investing. The judge found that Burford had effectively turned a courtroom into a profit center, blocking a $50 million settlement to maximize its own returns. Illinois lawmakers took notice.

State Rep. Dan Ugaste (R-Geneva) introduced HB5244 in February 2026. The bill does not ban third-party litigation financing. Instead, it establishes a regulatory framework requiring greater disclosure, consumer protections, and court transparency.

What the Litigation Financing Transparency Act Requires

In general, the Litigation Financing Transparency Act creates a registration and disclosure framework for litigation financiers operating in Illinois. Any person or entity engaging in litigation financing must register with the Illinois Department of Financial and Professional Regulation (IDFPR). Registration requires filing a formal registration statement. Operating without registration is prohibited.

The Act also sets specific requirements for litigation financing agreements. Agreements must include clear disclosures to the plaintiff. Those disclosures cover the total amount financed, the fees and compensation the financier expects to receive, and the conditions under which the financier can collect. Financiers must explain the plaintiff's rights and obligations under the agreement. The law prohibits financiers from making decisions about litigation strategy, settlement, or case direction. The plaintiff retains control of the legal proceeding.

The Act also amends the Illinois Code of Civil Procedure. In any pending action, a party may seek discovery of the existence and terms of a litigation financing agreement. Courts can examine who is funding the litigation and under what conditions. This gives judges and opposing parties visibility they previously lacked. Violations of the Act are treated as unlawful practices under the Consumer Fraud and Deceptive Business Practices Act. That classification carries meaningful enforcement consequences.

Why Illinois Lawyers Need to Understand the Litigation Financing Transparency Act

Illinois lawyers should understand this law for several reasons. First, clients may already be party to litigation financing agreements. Lawyers have an obligation to understand the financial arrangements surrounding their client's case. A financing agreement that limits settlement options or imposes conditions on case direction creates ethical pressure points. The Act directly addresses this dynamic. It prohibits financiers from controlling litigation strategy, but lawyers must still identify when those boundaries are being tested.

Second, the discovery provisions change the litigation landscape. Opposing counsel can now seek disclosure of financing agreements in active cases. Lawyers need to anticipate this. If a client has a financing agreement, that agreement may become part of the discovery record. Counsel should review any such agreements carefully before litigation begins. Agreements that run afoul of the Act's requirements could create additional legal exposure.

Third, the IDFPR registration requirement creates a new layer of due diligence. Lawyers whose clients are considering litigation financing should verify that the financier is properly registered in Illinois. Engaging with an unregistered financier exposes the client to risk. It may also complicate the case if the financing arrangement is later challenged.

How the Act Fits Into a National Trend

Illinois is not acting alone. Wisconsin and Indiana have already enacted similar legislation. Iowa and Missouri have introduced comparable bills. The U.S. Congress is considering federal legislation as well. The Illinois Coalition for Legal Reform supports HB5244. Executive Director Katie Reilly noted that third-party litigation funding has grown quickly, but Illinois law had not kept pace. The Act brings transparency and commonsense guardrails, ensuring Illinois lawsuits are driven by facts rather than investor returns.

The Burford Capital case illustrates why these measures have gained traction. Burford persuaded the Seventh Circuit to invalidate a negotiated $50 million settlement between Pilgrim's Pride and Sysco Corp. The financier's goal was to extend litigation and increase its own recovery. Seventh Circuit Judge Nancy Maldonado agreed Burford had the law on its side, but she criticized the company sharply for prioritizing profit over the interests of the plaintiffs it was financing. That outcome, an investor overriding a plaintiff's settlement, is exactly the scenario this legislation targets. Illinois courts, lawyers, and clients now have a statutory framework to push back.

What Illinois Law Firms Should Do Now

The Litigation Financing Transparency Act creates new obligations and new risks for Illinois law firms. Firms should review any existing client relationships that involve third-party financing. Determine whether current agreements comply with the Act's disclosure requirements. Advise clients who are considering litigation financing to work only with IDFPR-registered financiers. Incorporate financing agreement review into your intake and pre-litigation process. Anticipate that opposing counsel will use the new discovery provisions. If a client has a financing agreement, assume it may surface during litigation.

Professional liability exposure is also a consideration. Lawyers who fail to identify problematic financing arrangements, or who fail to advise clients about their rights under the Act, may face malpractice claims. ISBA Mutual encourages Illinois lawyers to stay current on HB5244 as it moves through the legislative process. Understanding the Litigation Financing Transparency Act now positions your firm to protect clients and manage risk before the law takes effect.

To make sure your Illinois law firm is properly covered against professional liability threats, contact the team at ISBA Mutual Insurance Company.