Bill Text: NY A00804 | 2025-2026 | General Assembly | Introduced
Bill Title: Enacts the consumer litigation funding act to promote consumer protections related to consumer litigation funding transactions; provides for contract requirements, including that the contract contain a no penalty provision for the prepayment of the funded amount prior to the settlement of their case; makes related provisions.
Spectrum: Partisan Bill (Democrat 13-0)
Status: (Introduced) 2025-01-08 - referred to consumer affairs and protection [A00804 Detail]
Download: New_York-2025-A00804-Introduced.html
STATE OF NEW YORK ________________________________________________________________________ 804 2025-2026 Regular Sessions IN ASSEMBLY (Prefiled) January 8, 2025 ___________ Introduced by M. of A. MAGNARELLI, SIMON, SAYEGH, BUTTENSCHON, COOK, WILLIAMS, DINOWITZ, STIRPE, JACKSON, GONZALEZ-ROJAS, HEVESI, TAYLOR, SEPTIMO -- 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 and charge limitations. 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. EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD00080-01-5A. 804 2 1 899-mmm. Severability. 2 § 899-ccc. Definitions. As used in this article, the following terms 3 shall have the following meanings: 4 1. "Advertise" means publishing or disseminating any written, oral, 5 electronic or printed communication or any communication by means of 6 recorded telephone messages or transmitted or broadcast on radio, tele- 7 vision, the internet or similar communications media, including audio 8 recordings, film strips, motion pictures and videos, published, dissem- 9 inated, circulated or placed before the public, directly or indirectly, 10 for the purpose of inducing a consumer to enter into a consumer liti- 11 gation funding. 12 2. "Charges" means the amount of money to be paid to the consumer 13 litigation funding company by or on behalf of the consumer, above the 14 funded amount provided by or on behalf of the company to a New York 15 consumer pursuant to this article. Charges include all administrative, 16 origination, underwriting or other fees, including interest, no matter 17 how denominated. Such charges shall not exceed the maximum annual 18 percentage rate applicable to consumer credit extended to a member of 19 the military as provided for in Title 10, United States Code, 20 section 987(b). Any contract which exceeds such rate shall be considered 21 usurious as defined by section 5-501 of the general obligations law. 22 3. "Consumer litigation funding" means a non-recourse transaction in 23 which a consumer litigation funding company purchases and a consumer 24 assigns to the company a contingent right to receive an amount of the 25 potential proceeds of a settlement, judgment, award, or verdict obtained 26 in the consumer's legal claim. 27 4. "Consumer litigation funding company" or "company" means a person 28 or entity that enters into a consumer litigation funding contract of no 29 more than five hundred thousand dollars with a consumer. This term shall 30 not include: 31 (a) an immediate family member of the consumer; 32 (b) a bank, lender, financing entity, or other special purpose entity: 33 (i) that provides financing to a consumer litigation funding company; 34 or 35 (ii) to which a consumer litigation funding company grants a security 36 interest or transfers any rights or interest in a consumer litigation 37 funding; or 38 (c) an attorney or accountant who provides services to a consumer. 39 5. "Consumer" means a natural person who has a pending legal claim and 40 who resides or is domiciled in New York. 41 6. "Funded amount" means the amount of monies provided to, or on 42 behalf of, the consumer in the consumer litigation funding. "Funded 43 amount" excludes charges. 44 7. "Funding date" means the date on which the funded amount is trans- 45 ferred to the consumer by the consumer litigation funding company either 46 by personal delivery or via wire, ACH or other electronic means or 47 mailed by insured, certified or registered United States mail. 48 8. "Immediate family member" means a parent; sibling; child by blood, 49 adoption, or marriage; spouse; grandparent; or grandchild. 50 9. "Legal claim" means a bona fide civil claim or cause of action. 51 10. "Resolution date" means the date the funded amount, plus the 52 agreed upon charges, are delivered to the consumer litigation funding 53 company by the consumer, the consumer's attorney or otherwise. 54 § 899-ddd. Contract requirements; right of rescission. 1. All consumer 55 litigation funding contracts shall meet the following requirements:A. 804 3 1 (a) a contract shall be written in a clear and coherent manner using 2 words with common, everyday meanings to enable the average consumer who 3 makes a reasonable effort under ordinary circumstances to read and 4 understand the terms of the contract without having to obtain the 5 assistance of a professional; 6 (b) the contract shall be completely filled in when presented to the 7 consumer for signature; 8 (c) the contract shall contain, in twelve point bold type font, a 9 right of rescission, allowing the consumer to cancel the contract with- 10 out penalty or further obligation if, within ten business days after the 11 funding date, the consumer returns to the consumer litigation funding 12 company the full amount of the disbursed funds; 13 (d) the contract shall contain the initials of the consumer on each 14 page; 15 (e) a statement that there are no fees or charges to be paid by the 16 consumer other than what is disclosed on the disclosure form; 17 (f) in the event the consumer seeks more than one litigation funding 18 contract from the same company, a disclosure providing the cumulative 19 amount due from the consumer for all transactions, including charges 20 under all contracts, if repayment is made any time after the contracts 21 are executed; 22 (g) a statement of the maximum amount the consumer may be obligated to 23 pay under the contract other than in a case of material breach, fraud or 24 misrepresentation by or on behalf of the consumer; and 25 (h) clear and conspicuous detail of how charges, including any appli- 26 cable fees, are incurred or accrued. 27 2. The contract shall contain a written acknowledgement by the attor- 28 ney retained by the consumer in the legal claim that attests to the 29 following: 30 (a) the attorney has reviewed the mandatory disclosures in section 31 eight hundred ninety-nine-ggg of this article with the consumer; 32 (b) the attorney is being paid on a contingency basis pursuant to a 33 written fee agreement; 34 (c) all proceeds of the legal claim will be disbursed via either the 35 trust account of the attorney or a settlement fund established to 36 receive the proceeds of the legal claim on behalf of the consumer; 37 (d) the attorney is obligated to disburse funds from the legal claim 38 and take any other steps to ensure that the terms of the litigation 39 funding contract are fulfilled; 40 (e) the attorney has not received a referral fee or other consider- 41 ation from the consumer litigation funding company in connection with 42 the consumer litigation funding, nor will the attorney receive such fee 43 or other consideration in the future; and 44 (f) the attorney in the legal claim has provided no tax, public or 45 private benefit planning, or financial advice regarding this trans- 46 action. 47 3. In the event that the acknowledgement required pursuant to para- 48 graph (c) of subdivision two of this section is not completed by the 49 attorney or firm retained by the consumer in the legal claim, the 50 contract shall be null and void. The contract shall remain valid and 51 enforceable in the event the consumer terminates the initial attorney 52 and/or retains a new attorney with respect to the legal claim. 53 4. Notwithstanding paragraph b of subdivision three of section 5-501 54 of the general obligations law, no prepayment penalties or fees shall be 55 charged or collected on consumer litigation funding. A prepayment 56 penalty on consumer litigation funding shall be unenforceable.A. 804 4 1 § 899-eee. Prohibitions and charge limitations. 1. Consumer liti- 2 gation funding companies shall be prohibited from: 3 (a) paying or offering to pay commissions, referral fees, or other 4 forms of consideration to any attorney, law firm, medical provider, 5 chiropractor or physical therapist or any of their employees for refer- 6 ring a consumer to the company; 7 (b) accepting any commissions, referral fees, rebates or other forms 8 of consideration from an attorney, law firm, medical provider, chiro- 9 practor or physical therapist or any of their employees; 10 (c) intentionally advertising materially false or misleading informa- 11 tion regarding its products or services; 12 (d) referring, in furtherance of an initial legal funding, a customer 13 or potential customer to a specific attorney, law firm, medical provid- 14 er, chiropractor or physical therapist or any of their employees; 15 provided, however, if a customer needs legal representation, the company 16 may refer the customer to a local or state bar association referral 17 service; 18 (e) knowingly providing funding to a consumer who has previously 19 assigned and/or sold a portion of the consumer's right to proceeds from 20 the consumer's legal claim without first making payment to and/or 21 purchasing a prior unsatisfied consumer litigation funding company's 22 entire funded amount and contracted charges, unless a lesser amount is 23 otherwise agreed to in writing by the consumer litigation funding compa- 24 nies, except that multiple companies may agree to contemporaneously 25 provide funding to a consumer provided that the consumer and the consum- 26 er's attorney consent to the arrangement in writing; 27 (f) receiving any right to, or making, any decisions with respect to 28 the conduct of the underlying legal claim or any settlement or resol- 29 ution thereof. The right to make such decisions shall remain solely with 30 the consumer and the attorney in the legal claim; 31 (g) attempting to obtain a waiver of any remedy or right by the 32 consumer, including but not limited to the right to trial by jury; 33 (h) knowingly paying or offering to pay for court costs, filing fees 34 or attorney's fees either during or after the resolution of the legal 35 claim, using funds from the consumer litigation funding transaction; 36 (i) knowingly offering or colluding to provide funding as an induce- 37 ment to a consumer who is presently represented by counsel to terminate 38 that engagement and engage such lawyer or law firm to represent them in 39 the same matter. Any consumer litigation funding contract entered into 40 in violation of this paragraph shall be void ab initio; and 41 (j) colluding with or knowingly assisting a lawyer or law firm that is 42 enticing or intends to entice a consumer to bring a claim that the 43 company knows or has reason to know is fabricated or otherwise not 44 brought in good faith. Any consumer litigation funding contract entered 45 into in violation of this paragraph shall be void ab initio. 46 2. An attorney or law firm retained by the consumer in the legal claim 47 shall not have a financial interest in the consumer litigation funding 48 company offering consumer litigation funding to that consumer. 49 3. Any attorney who has referred the consumer to the consumer's 50 retained attorney shall not have a financial interest in the consumer 51 litigation funding company offering consumer litigation funding to that 52 consumer. 53 4. The attorney may only disclose privileged information to the 54 consumer litigation funding company with the written consent of the 55 consumer.A. 804 5 1 § 899-fff. Contracted amounts. The contracted amount to be paid to the 2 consumer litigation funding company shall be a predetermined amount 3 based upon intervals of time from the funding date through the resol- 4 ution date, and shall not be determined as a percentage of the recovery 5 from the legal claim. 6 § 899-ggg. Disclosures. All consumer litigation funding contracts 7 shall contain the disclosures specified in this section, which shall 8 constitute material terms of the contract. Unless otherwise specified, 9 such disclosures shall be typed in at least twelve point bold type font 10 and be placed clearly and conspicuously within the contract, as follows: 11 1. On the front page under appropriate headings, language specifying: 12 (a) the funded amount to be paid to the consumer by the consumer liti- 13 gation funding company; 14 (b) an itemization of one-time charges; 15 (c) the maximum total amount to be assigned by the consumer to the 16 company, including the funded amount and all charges; and 17 (d) a payment schedule to include the funded amount and charges, list- 18 ing all dates and the amount due at the end of each one hundred eighty 19 day period from the funding date, until the date the maximum amount due 20 to the company pursuant to the contract is paid. 21 2. Pursuant to the provisions set forth in this section, within the 22 body of the contract: "Consumer's right to cancellation: you may cancel 23 this contract without penalty or further obligation within ten business 24 days after the funding date if you return to the consumer litigation 25 funding company the full amount of the disbursed funds." 26 3. The consumer litigation funding company shall have no role in 27 deciding whether, when and how much the legal claim is settled for, 28 however, the consumer and consumer's attorney must notify the company of 29 the outcome of the legal claim by settlement or adjudication prior to 30 the resolution date. The company may seek updated information about the 31 status of the legal claim but in no event shall the company interfere 32 with the independent professional judgement of the attorney in the 33 handling of the legal claim or any settlement thereof. 34 4. Within the body of the contract, in all capital letters in at least 35 twelve point bold type font contained within a box: "THE FUNDED AMOUNT 36 AND AGREED UPON CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR 37 LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAIL- 38 ABLE PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF 39 THE CONSUMER LITIGATION FUNDING COMPANY) ANYTHING IF THERE ARE NO 40 PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL 41 TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST (INSERT NAME 42 OF CONSUMER LITIGATION FUNDING COMPANY)." 43 5. Located immediately above the place on the contract where the 44 consumer's signature is required, in twelve point bold type font: "Do 45 not sign this contract before you read it completely. Do not sign this 46 contract if it contains any blank spaces. You are entitled to a 47 completely filled-in copy of the contract before you sign this contract. 48 You should obtain the advice of any attorney. Depending on the circum- 49 stances, you may want to consult a tax, public or private benefits plan- 50 ning, or financial professional. You acknowledge that your attorney in 51 the legal claim has provided no tax, public or private benefit planning, 52 or financial advice regarding this transaction. You further acknowledge 53 that your attorney has explained the terms and conditions of the consum- 54 er litigation funding contract." 55 6. A copy of the executed contract shall promptly be delivered to the 56 attorney for the consumer.A. 804 6 1 § 899-hhh. Violations. 1. Any consumer litigation funding company 2 found in willful violation of any provision of this article in a specif- 3 ic funding case: (a) waives its right to recover both the funded amount 4 and any and all charges, as defined in subdivision two of section eight 5 hundred ninety-nine-ccc of this article, in that particular case; and 6 (b) shall be liable for a civil penalty of not more than five thousand 7 dollars for each violation, which shall accrue to the state of New York 8 and may be recovered in a civil action brought by the attorney general. 9 2. Nothing in this article shall be construed to restrict the exercise 10 of powers or the performance of the duties of the New York state attor- 11 ney general, which the attorney general is authorized to exercise or 12 perform by law. 13 § 899-iii. Assignability; liens. 1. The contingent right to receive an 14 amount of the potential proceeds of a legal claim is assignable by a 15 consumer. 16 2. Only attorney's liens related to the legal claim which is the 17 subject of the consumer litigation funding or medicare or other statuto- 18 ry liens related to the legal claim shall take priority over any lien of 19 the consumer litigation funding company. All other liens shall take 20 priority by normal operation of law. 21 § 899-jjj. Effect of communication on privileges. All communication 22 between the consumer's attorney in the legal claim and the consumer 23 legal funding company as it pertains to the consumer legal funding shall 24 fall within the scope of the attorney client privilege, including, with- 25 out limitation, the work-product doctrine. 26 § 899-kkk. Registration. 1. Unless a consumer litigation funding 27 company has first registered with the state of New York pursuant to this 28 article, the company may not engage in the business of consumer liti- 29 gation funding in this state. 30 2. An applicant's registration must be filed in the manner prescribed 31 by the secretary of state and must contain all the information required 32 by the department of state to make an evaluation of the character and 33 fitness of the applicant company. The initial application must be accom- 34 panied by a five hundred dollar fee. A renewal registration must include 35 a two hundred dollar fee. A registration must be renewed every two years 36 and expires on the thirtieth of September. 37 3. A certificate of registration may not be issued unless the depart- 38 ment of state, upon investigation, finds that the character and fitness 39 of the applicant company, and of the officers and directors thereof, are 40 such as to warrant belief that the business will be operated honestly 41 and fairly within the purposes of this article. 42 4. Every registrant shall also, at the time of filing such applica- 43 tion, file with the department of state, if the department of state so 44 requires, a bond satisfactory to the department of state in an amount 45 not to exceed fifty thousand dollars. In lieu of the bond at the option 46 of the registrant, the registrant may post an irrevocable letter of 47 credit. The terms of the bond must run concurrent with the period of 48 time during which the registration will be in effect. The bond must 49 provide that the registrant will faithfully conform to and abide by the 50 provisions of this article and to all rules lawfully made by the admin- 51 istrator under this act and to any such person or persons any and all 52 amounts of money that may become due or owing to the state or to such 53 person or persons from the registrant under and by virtue of this arti- 54 cle during the period for which the bond is given. 55 5. Upon written request, the applicant shall be entitled to a hearing 56 on the question of the applicant's qualifications for registration if:A. 804 7 1 (a) the department of state has notified the applicant in writing that 2 the application has been denied, or 3 (b) the department of state has not issued a registration within sixty 4 days after the application for the registration was filed. 5 6. A request for a hearing may not be made more than fifteen days 6 after the department has mailed a written notice to the applicant that 7 the application has been denied and stating in substance the department 8 of state's findings supporting denial of the application. 9 7. Notwithstanding the prior approval requirement of subdivision one 10 of this section, a consumer litigation funding company that registered 11 with the department of state between the effective date of this article 12 or when the department of state has made applications available to the 13 public, whichever is later, and one hundred eighty days thereafter may 14 engage in consumer litigation funding while the company's registration 15 is pending approval with the department of state. All funding agreements 16 entered into prior to the effective date of this article are not subject 17 to the terms of this article. 18 8. No consumer litigation funding company may use any form of consumer 19 litigation funding contract in this state unless it has been filed with 20 the department of state in accordance with the filing procedures set 21 forth by the secretary of state. 22 9. The secretary of state is hereby authorized to adopt rules and 23 regulations to implement the provisions of this section as needed. 24 § 899-lll. Reporting. 1. Each consumer litigation funding company that 25 engages in business in the state shall submit a report to the department 26 of state no later than the thirty-first of January of each year specify- 27 ing: 28 (a) number of consumer litigation fundings by the company; 29 (b) summation of funded amounts in dollar figure; and 30 (c) annual percentage charged to each consumer where repayment was 31 made. 32 2. The department of state shall make such information available to 33 the public, in a manner which maintains the confidentiality of the name 34 of each company and consumer, no later than ninety days after the 35 reports are submitted. 36 § 899-mmm. Severability. If any provision of this article is, for any 37 reason, declared unconstitutional or invalid, in whole or in part, by 38 any court of competent jurisdiction, such portion shall be deemed sever- 39 able, and such unconstitutionality or invalidity shall not affect the 40 validity of the remaining portions of this article, which remaining 41 portions shall continue in full force and effect. 42 § 4. This act shall take effect on the one hundred eightieth day after 43 it shall have become a law; provided, however, it shall not apply to or 44 in any way affect or invalidate any consumer litigation funding previ- 45 ously effectuated prior to the effective date of this act.
