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.
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
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.
