A08966 Summary:

BILL NOA08966
 
SAME ASNo Same As
 
SPONSORDilan
 
COSPNSRPaulin
 
MLTSPNSR
 
Add Art 39-H 899-ccc - 899-mmm, Gen Bus L
 
Establishes that consumer litigation funding transactions should be subject to state regulation and sets forth requirements regarding disclosure, licensing, funding company and attorney responsibilities and limitations, violations and other provisions.
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A08966 Actions:

BILL NOA08966
 
01/09/2018referred to consumer affairs and protection
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A08966 Committee Votes:

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A08966 Floor Votes:

There are no votes for this bill in this legislative session.
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A08966 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A8966
 
SPONSOR: Dilan
  TITLE OF BILL: An act to amend the general business law, in relation to consumer litigation funding   PURPOSE OR GENERAL IDEA OF BILL: The bill establishes specific guidelines and provisions to regulate the Consumer Litigation Funding Industry in New York State. This bill may be cited as the "Consumer Litigation Funding Act".   SUMMARY OF PROVISIONS: Section 1 relates the short title of the bill. Section 2 clarifies the legislative intent. Section 3 amends the general business law by adding a new article, 39-H, which specifies guidelines of regulation as follows: 899-ccc: provides definitions 899-ddd: provides contract requirements including rights of rescission 899-eee: sets forth prohibitions and sets interest rate cap 899-fff: clarifies payment schedule of contracted amount 899-ggg: sets forth necessary disclosure language in contracts 899-hhh: provides penalties for violations of this bill 899-iii: clarifies assignability of claims 899-jjj: provides confidentiality of communications 899-kkk: sets forth registration and licensing requirements 899-111: sets forth reporting requirements 899-mmm: severability clause Section 4 sets the effective date.   JUSTIFICATION: Consumer Litigation Financing emerged as an industry in the US in the 1990s. By providing consumers with non-recourse litigation funding to cover expenses while awaiting legal claims, the industry lent support to many who felt unable to pursue legal action due to financial constraints. However, as there is no recourse if the claimant loses the suit, regular lending and collection caps do not apply to these financ- ing companies. As a result, collected fees have the potential to reach usurious rates, often unbeknownst to the consumer. The industry is currently unregulated, exposing potential clients to risk. This legislation instructs companies to submit applications to the Secretary of State, who awards licensure and registration of companies pursuant to character and fitness determinations. Additionally, it mandates financing companies to disclose their fee structure, repayment terms, rights of rescission, and outlines various prohibitions which will better educate consumers to the terms of their contract. Further- more, this legislation established federally recognized maximum collection rates on funded amounts, and directs contracts to outline what consumers will owe at any given time. This also bill includes reporting guidelines that will allow the state to publicize data on the actions of this industry for accountability purposes. Finally, this legislation also establishes strict penalties for those found in willing violation of these provisions.   FISCAL IMPLICATIONS: None   LEGISLATIVE HISTORY: This is a new bill   EFFECTIVE DATE: This act shall take effect 180 days after the bill becomes law
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A08966 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                          8966
 
                   IN ASSEMBLY
 
                                     January 9, 2018
                                       ___________
 
        Introduced  by M. of A. DILAN -- read once and referred to the Committee
          on Consumer Affairs and Protection
 
        AN ACT to amend the general business law, in relation to consumer  liti-
          gation funding
 
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
 
     1    Section 1. Short title. This act shall be known and may  be  cited  as
     2  the "consumer litigation funding act".
     3    §  2. Legislative intent. In an effort to promote consumer protections
     4  related to consumer litigation funding  transactions,  this  act  estab-
     5  lishes  that such transactions should be subject to state regulation and
     6  sets forth requirements regarding disclosure, licensing, funding company
     7  and attorney responsibilities  and  limitations,  violations  and  other
     8  items.
     9    §  3. The general business law is amended by adding a new article 39-H
    10  to read as follows:
    11                                ARTICLE 39-H
    12                      THIRD PARTY LITIGATION FINANCING
    13  Section 899-ccc. Definitions.
    14          899-ddd. Contract requirements; right of rescission.
    15          899-eee. Prohibitions.
    16          899-fff. Contracted amounts.
    17          899-ggg. Disclosures.
    18          899-hhh. Violations.
    19          899-iii. Assignability; liens.
    20          899-jjj. Effect of communication on privileges.
    21          899-kkk. Registration.
    22          899-lll. Reporting.
    23          899-mmm. Severability.
    24    § 899-ccc. Definitions. As used in this article, the  following  terms
    25  shall have the following meanings:
    26    1.  "Advertise"  means publishing or disseminating any written, aural,
    27  electronic or printed communication or any  communication  by  means  of
    28  recorded  telephone messages or transmitted or broadcast on radio, tele-
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD10355-05-7

        A. 8966                             2
 
     1  vision, the internet or similar communications  media,  including  audio
     2  recordings,  film strips, motion pictures and videos, published, dissem-
     3  inated, circulated or placed before the public, directly or  indirectly,
     4  for  the  purpose  of inducing a consumer to enter into a consumer liti-
     5  gation funding.
     6    2. "Charges" means the amount of money to  be  paid  to  the  consumer
     7  litigation  funding  company  by or on behalf of the consumer, above the
     8  funded amount provided by or on behalf of the  company  to  a  New  York
     9  consumer  pursuant  to this article. Charges include all administrative,
    10  origination, underwriting or other fees no matter how denominated.
    11    3. "Consumer litigation funding" means a non-recourse  transaction  in
    12  which  a  consumer  litigation  funding company purchases and a consumer
    13  assigns to the company a contingent right to receive an  amount  of  the
    14  potential proceeds of a settlement, judgment, award, or verdict obtained
    15  in the consumer's legal claim.
    16    4.  "Consumer  litigation funding company" or "company" means a person
    17  or entity that enters into a consumer litigation funding with a  consum-
    18  er. This term shall not include:
    19    (a) an immediate family member of the consumer;
    20    (b) a bank, lender, financing entity, or other special purpose entity:
    21    (i)  that provides financing to a consumer litigation funding company;
    22  or
    23    (ii) to which a consumer litigation funding company grants a  security
    24  interest  or  transfers  any rights or interest in a consumer litigation
    25  funding; or
    26    (c) an attorney or accountant who provides services to a consumer.
    27    5. "Consumer" means a natural person who has a pending legal claim and
    28  who resides or is domiciled in New York.
    29    6. "Funded amount" means the amount  of  monies  provided  to,  or  on
    30  behalf  of,  the  consumer  in  the consumer litigation funding. "Funded
    31  amount" excludes charges.
    32    7. "Funding date" means the date on which the funded amount is  trans-
    33  ferred to the consumer by the consumer litigation funding company either
    34  by  personal  delivery  or  via  wire,  ACH or other electronic means or
    35  mailed by insured, certified or registered United States mail.
    36    8. "Immediate family member" means a parent; sibling; child by  blood,
    37  adoption, or marriage; spouse; grandparent or grandchild.
    38    9. "Legal claim" means a bona fide civil claim or cause of action.
    39    10.  "Resolution  date"  means  the  date  the funded amount, plus the
    40  agreed upon charges, are delivered to the  consumer  litigation  funding
    41  company by the consumer, the consumer's attorney or otherwise.
    42    § 899-ddd. Contract requirements; right of rescission. 1. All consumer
    43  litigation funding contracts shall meet the following requirements:
    44    (a)  a  contract shall be written in a clear and coherent manner using
    45  words with common, everyday meanings to enable the average consumer  who
    46  makes  a  reasonable  effort  under  ordinary  circumstances to read and
    47  understand the terms of  the  contract  without  having  to  obtain  the
    48  assistance of a professional;
    49    (b)  the  contract shall be completely filled in when presented to the
    50  consumer for signature;
    51    (c) the contract shall contain, in twelve  point  bold  type  font,  a
    52  right  of rescission, allowing the consumer to cancel the contract with-
    53  out penalty or further obligation if, within five  business  days  after
    54  the funding date, the consumer either:

        A. 8966                             3
 
     1    (i) returns to the consumer litigation funding company the full amount
     2  of the disbursed funds by delivering the company's uncashed check to the
     3  company's office in person; or
     4    (ii)  mails,  by insured, certified, or registered United States mail,
     5  to the address specified in the contract, a notice of  cancellation  and
     6  includes  in such mailing a return of the full amount of disbursed funds
     7  in the form of the company's uncashed check or a registered or certified
     8  check or money order;
     9    (d) the contract shall contain the initials of the  consumer  on  each
    10  page;
    11    (e)  a  statement  that there are no fees or charges to be paid by the
    12  consumer other than what is disclosed on the disclosure form;
    13    (f) in the event the consumer seeks more than one  litigation  funding
    14  contract  from  the  same company, a disclosure providing the cumulative
    15  amount due from the consumer for  all  transactions,  including  charges
    16  under  all  contracts, if repayment is made any time after the contracts
    17  are executed;
    18    (g) a statement of the maximum amount the consumer may be obligated to
    19  pay under the contract other than in a case of material breach, fraud or
    20  misrepresentation by or on behalf of the consumer; and
    21    (h) clear and conspicuous detail of how charges, including any  appli-
    22  cable fees, are incurred or accrued.
    23    2.  The contract shall contain a written acknowledgement by the attor-
    24  ney retained by the consumer in the legal  claim  that  attests  to  the
    25  following:
    26    (a)  to  the  best of the attorney's knowledge, the funded amounts and
    27  any charges relating  to  the  consumer  litigation  funding  have  been
    28  disclosed to the consumer;
    29    (b)  the  attorney  is being paid on a contingency basis pursuant to a
    30  written fee agreement;
    31    (c) all proceeds of the legal claim will be disbursed via  either  the
    32  trust  account  of  the  attorney  or  a  settlement fund established to
    33  receive the proceeds of the legal claim on behalf of the consumer;
    34    (d) the attorney is following the written irrevocable instructions  of
    35  the consumer with regard to the consumer litigation funding;
    36    (e)  the  attorney is obligated to disburse funds from the legal claim
    37  and take any other steps to ensure that  the  terms  of  the  litigation
    38  funding contract are fulfilled;
    39    (f)  the  attorney  has not received a referral fee or other consider-
    40  ation from the consumer litigation funding company  in  connection  with
    41  the  consumer litigation funding, nor will the attorney receive such fee
    42  or other consideration in the future; and
    43    (g) the attorney in the legal claim has provided  no  tax,  public  or
    44  private  benefit  planning,  or  financial  advice regarding this trans-
    45  action.
    46    3. Should the acknowledgement required in paragraph (c) of subdivision
    47  two of this section not be completed by the attorney or firm retained by
    48  the consumer in the legal claim, the contract shall be  null  and  void.
    49  The contract will remain valid and enforceable in the event the consumer
    50  terminates  the  initial  attorney  and/or  retains  a new attorney with
    51  respect to the legal claim.
    52    § 899-eee. Prohibitions.  1.  Consumer  litigation  funding  companies
    53  shall be prohibited from:
    54    (a)  paying  or  offering  to pay commissions, referral fees, or other
    55  forms of consideration to any  attorney,  law  firm,  medical  provider,

        A. 8966                             4
 
     1  chiropractor  or physical therapist or any of their employees for refer-
     2  ring a consumer to the company;
     3    (b)  accepting  any commissions, referral fees, rebates or other forms
     4  of consideration from an attorney, law firm,  medical  provider,  chiro-
     5  practor or physical therapist or any of their employees;
     6    (c)  intentionally advertising materially false or misleading informa-
     7  tion regarding its products or services;
     8    (d) referring, in furtherance of an initial legal funding, a  customer
     9  or  potential customer to a specific attorney, law firm, medical provid-
    10  er, chiropractor or  physical  therapist  or  any  of  their  employees;
    11  provided, however, if a customer needs legal representation, the company
    12  may  refer  the  customer  to  a local or state bar association referral
    13  service;
    14    (e) knowingly providing funding  to  a  consumer  who  has  previously
    15  assigned  and/or sold a portion of the consumer's right to proceeds from
    16  his or her legal claim without first making payment to and/or purchasing
    17  a prior unsatisfied consumer litigation funding company's entire  funded
    18  amount  and  contracted  charges,  unless  a  lesser amount is otherwise
    19  agreed to in writing  by  the  consumer  litigation  funding  companies,
    20  except  that  multiple  companies may agree to contemporaneously provide
    21  funding to a consumer provided that  the  consumer  and  the  consumer's
    22  attorney consent to the arrangement in writing;
    23    (f)  receiving  any  right to, nor make, any decisions with respect to
    24  the conduct of the underlying legal claim or any  settlement  or  resol-
    25  ution thereof. The right to make such decisions shall remain solely with
    26  the consumer and the attorney in the legal claim;
    27    (g)  knowingly  pay or offering to pay for court costs, filing fees or
    28  attorney's fees either during or  after  the  resolution  of  the  legal
    29  claim, using funds from the consumer litigation funding transaction.
    30    2. An attorney or law firm retained by the consumer in the legal claim
    31  shall  not  have a financial interest in the consumer litigation funding
    32  company offering consumer litigation funding to that consumer.
    33    3. Any attorney who has referred the consumer to his retained attorney
    34  shall not have a financial interest in the consumer  litigation  funding
    35  company offering consumer litigation funding to that consumer.
    36    § 899-fff. Contracted amounts. The contracted amount to be paid to the
    37  consumer  litigation  company shall be a predetermined amount based upon
    38  intervals of time from the funding date through the resolution date, and
    39  shall not be determined as a percentage of the recovery from  the  legal
    40  claim.
    41    §  899-ggg.  Disclosures.  All  consumer  litigation funding contracts
    42  shall contain the disclosures specified in  this  section,  which  shall
    43  constitute  material  terms of the contract. Unless otherwise specified,
    44  the disclosures shall be typed in at least twelve point bold  type  font
    45  and be placed clearly and conspicuously within the contract, as follows:
    46    1. On the front page under appropriate headings, language specifying:
    47    (a) the funded amount to be paid to the consumer by the consumer liti-
    48  gation funding company;
    49    (b) an itemization of one-time charges;
    50    (c)  the  maximum  total  amount to be assigned by the consumer to the
    51  company, including the funded amount and all charges; and
    52    (d) a payment schedule to include the funded amount and charges, list-
    53  ing all dates and the amount due at the end of each one  hundred  eighty
    54  day  period from the funding date, until the date the maximum amount due
    55  to the company by the consumer to satisfy the amount due pursuant to the
    56  contract.

        A. 8966                             5
 
     1    2. Pursuant to the provisions set forth in this  section,  within  the
     2  body  of the contract: "Consumer's right to cancellation: you may cancel
     3  this contract without penalty or  further  obligation  within  five  (5)
     4  business days after the funding date if you either:
     5    (a)  return to the consumer litigation funding company the full amount
     6  of the disbursed funds by delivering the company's uncashed check to the
     7  company's office in person; or
     8    (b) mail, by insured, certified or registered United States  mail,  to
     9  the  company  at  the  address  specified  in  the contract, a notice of
    10  cancellation and include in such mailing a return of the full amount  of
    11  disbursed  funds in the form of the company's uncashed check or a regis-
    12  tered or certified check or money order."
    13    3. The consumer litigation funding  company  shall  have  no  role  in
    14  deciding  whether,  when  and  how  much the legal claim is settled for,
    15  however, the consumer and consumer's attorney must notify the company of
    16  the outcome of the legal claim by settlement or  adjudication  prior  to
    17  the  resolution date. The company may seek updated information about the
    18  status of the legal claim but in no event shall  the  company  interfere
    19  with  the  independent  professional  judgement  of  the attorney in the
    20  handling of the legal claim or any settlement thereof.
    21    4. Within the body of the contract, in all capital letters in at least
    22  twelve point bold type font contained within a box:  "THE FUNDED  AMOUNT
    23  AND  AGREED  UPON  CHARGES  SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR
    24  LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE  AVAIL-
    25  ABLE  PROCEEDS  FROM  YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF
    26  THE CONSUMER LITIGATION  FUNDING  COMPANY)  ANYTHING  IF  THERE  ARE  NO
    27  PROCEEDS  FROM  YOUR  LEGAL CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL
    28  TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST  (INSERT  NAME
    29  OF CONSUMER LITIGATION FUNDING COMPANY)."
    30    5.  Located  immediately  above  the  place  on the contract where the
    31  consumer's signature is required, in twelve point bold  type  font:  "Do
    32  not  sign  this contract before you read it completely. Do not sign this
    33  contract if it  contains  any  blank  spaces.  You  are  entitled  to  a
    34  completely filled-in copy of the contract before you sign this contract.
    35  You  should  obtain the advice of any attorney. Depending on the circum-
    36  stances, you may want to consult a tax, public or private benefits plan-
    37  ning, or financial professional. You acknowledge that your  attorney  in
    38  the legal claim has provided no tax, public or private benefit planning,
    39  or  financial advice regarding this transaction. You further acknowledge
    40  that your attorney has explained the terms and conditions of the consum-
    41  er litigation funding contract."
    42    6. A copy of the executed contract shall promptly be delivered to  the
    43  attorney for the consumer.
    44    §  899-hhh. Violations. 1. If a court of competent jurisdiction deter-
    45  mines that a consumer  litigation funding company has willfully  commit-
    46  ted  a  deceptive and abusive violation of this article with regard to a
    47  specific consumer litigation funding, the contract  shall  be  null  and
    48  void.
    49    2. Nothing in this article shall be construed to restrict the exercise
    50  of  powers or the performance of the duties of the New York state attor-
    51  ney general, which he or she is authorized to  exercise  or  perform  by
    52  law.
    53    § 899-iii. Assignability; liens. 1. The contingent right to receive an
    54  amount  of  the  potential  proceeds of a legal claim is assignable by a
    55  consumer.

        A. 8966                             6
 
     1    2. Nothing contained in this article shall be construed to  cause  any
     2  consumer litigation funding transaction conforming to this article to be
     3  deemed a loan or to be subject to any of the provisions governing loans.
     4  A  consumer litigation funding transaction that complies with this arti-
     5  cle  is  not  subject  to  any  other statutory or regulatory provisions
     6  governing loans or investment contracts. To the extent that this article
     7  conflicts with any other law, this article supersedes any other law  for
     8  the  purposes  of regulating consumer litigation funding in the state of
     9  New York.
    10    3. Only attorney's liens related to  the  legal  claim  which  is  the
    11  subject of the consumer litigation funding or medicare or other statuto-
    12  ry liens related to the legal claim shall take priority over any lien of
    13  the  consumer  litigation  funding  company.  All other liens shall take
    14  priority by normal operation of law.
    15    § 899-jjj. Effect of communication on  privileges.  All  communication
    16  between  the  consumer's  attorney  in  the legal claim and the consumer
    17  legal funding company as it pertains to the consumer legal funding shall
    18  fall within the scope of the attorney client privilege, including, with-
    19  out limitation, the work-product doctrine.
    20    § 899-kkk. Registration.  1.  Unless  a  consumer  litigation  funding
    21  company has first registered with the state of New York pursuant to this
    22  article,  the  company  may not engage in the business of consumer liti-
    23  gation funding in this state.
    24    2. An applicant's registration must be filed in the manner  prescribed
    25  by  the secretary of state and must contain all the information required
    26  by the department of state to make an evaluation of  the  character  and
    27  fitness of the applicant company. The initial application must be accom-
    28  panied by a five hundred dollar fee. A renewal registration must include
    29  a two hundred dollar fee. A registration must be renewed every two years
    30  and expires on the thirtieth of September.
    31    3.  A certificate of registration may not be issued unless the depart-
    32  ment of state, upon investigation, finds that the character and  fitness
    33  of the applicant company, and of the officers and directors thereof, are
    34  such  as  to  warrant belief that the business will be operated honestly
    35  and fairly within the purposes of this article.
    36    4. Every registrant shall also, at the time of  filing  such  applica-
    37  tion,  file  with the department of state, if the department of state so
    38  requires, a bond satisfactory to the department of state  in  an  amount
    39  not  to exceed fifty thousand dollars. In lieu of the bond at the option
    40  of the registrant, the registrant may  post  an  irrevocable  letter  of
    41  credit.  The  terms  of  the bond must run concurrent with the period of
    42  time during which the registration will be  in  effect.  The  bond  must
    43  provide  that the registrant will faithfully conform to and abide by the
    44  provisions of this article and to all rules lawfully made by the  admin-
    45  istrator  under  this  act and to any such person or persons any and all
    46  amounts of money that may become due or owing to the state  or  to  such
    47  person  or persons from the registrant under and by virtue of this arti-
    48  cle during the period for which the bond is given.
    49    5. Upon written request, the applicant shall be entitled to a  hearing
    50  on the question of the applicant's qualifications for registration if:
    51    (a) the department of state has notified the applicant in writing that
    52  the application has been denied, or
    53    (b) the department of state has not issued a registration within sixty
    54  days after the application for the registration was filed.
    55    6.  A  request  for  a  hearing may not be made more than fifteen days
    56  after the department has mailed a written notice to the  applicant  that

        A. 8966                             7
 
     1  the  application has been denied and stating in substance the department
     2  of state's findings supporting denial of the application.
     3    7.  Notwithstanding  the prior approval requirement of subdivision one
     4  of this section, a consumer litigation funding company  that  registered
     5  with  the department of state between the effective date of this article
     6  or when the department of state has made applications available  to  the
     7  public,  whichever  is later, and one hundred eighty days thereafter may
     8  engage in consumer litigation funding while the  company's  registration
     9  is pending approval with the department of state. All funding agreements
    10  entered into prior to the effective date of this article are not subject
    11  to the terms of this article.
    12    8. No consumer litigation funding company may use any form of consumer
    13  litigation  funding contract in this state unless it has been filed with
    14  the department of state in accordance with  the  filing  procedures  set
    15  forth by the secretary of state.
    16    9.  The  secretary  of  state  is hereby authorized to adopt rules and
    17  regulations to implement the provisions of this section as needed.
    18    § 899-lll. Reporting. 1. Each consumer litigation funding company that
    19  engages in business in the state shall submit a report to the department
    20  of financial services no later than the thirty-first of January of  each
    21  year specifying:
    22    (a) number of consumer litigation fundings by the company;
    23    (b) summation of funded amounts in dollar figure; and
    24    (c)  annual  percentage  charged  to each consumer where repayment was
    25  made.
    26    2. The department of state shall make these figures available  to  the
    27  public,  in  a manner which maintains the confidentiality of the name of
    28  each company and consumer, no later than one year after the reports  are
    29  delivered.
    30    §  899-mmm. Severability. If any provision of this article is, for any
    31  reason, declared unconstitutional or invalid, in whole or  in  part,  by
    32  any court of competent jurisdiction, such portion shall be deemed sever-
    33  able,  and  such  unconstitutionality or invalidity shall not affect the
    34  validity of the remaining portions  of  this  article,  which  remaining
    35  portions shall continue in full force and effect.
    36    § 4. This act shall take effect on the one hundred eightieth day after
    37  it  shall have become a law; provided, however, it shall not apply or in
    38  any way affect or invalidate any consumer litigation funding  previously
    39  effectuated prior to the effective date of this act.
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