STATE OF NEW YORK ________________________________________________________________________ 9105 IN SENATE June 17, 2018 ___________ Introduced by Sens. ORTT, DeFRANCISCO -- read twice and ordered printed, and when printed to be committed to the Committee on Rules 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. 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. LBD16338-02-8S. 9105 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. Such 11 charges shall not exceed the maximum annual percentage rate applicable 12 to consumer credit extended to a member of the military as provided for 13 in Title 10, United States Code, section 987(b). Any contract which 14 exceeds such rate shall be considered usurious as defined by section 15 5-501 of the general obligations law. 16 3. "Consumer litigation funding" means a non-recourse transaction in 17 which a consumer litigation funding company purchases and a consumer 18 assigns to the company a contingent right to receive an amount of the 19 potential proceeds of a settlement, judgment, award, or verdict obtained 20 in the consumer's legal claim. 21 4. "Consumer litigation funding company" or "company" means a person 22 or entity that enters into a consumer litigation funding contract of no 23 more than five hundred thousand dollars with a consumer. This term shall 24 not include: 25 (a) an immediate family member of the consumer; 26 (b) a bank, lender, financing entity, or other special purpose entity: 27 (i) that provides financing to a consumer litigation funding company; 28 or 29 (ii) to which a consumer litigation funding company grants a security 30 interest or transfers any rights or interest in a consumer litigation 31 funding; or 32 (c) an attorney or accountant who provides services to a consumer. 33 5. "Consumer" means a natural person who has a pending legal claim and 34 who resides or is domiciled in New York. 35 6. "Funded amount" means the amount of monies provided to, or on 36 behalf of, the consumer in the consumer litigation funding. "Funded 37 amount" excludes charges. 38 7. "Funding date" means the date on which the funded amount is trans- 39 ferred to the consumer by the consumer litigation funding company either 40 by personal delivery or via wire, ACH or other electronic means or 41 mailed by insured, certified or registered United States mail. 42 8. "Immediate family member" means a parent; sibling; child by blood, 43 adoption, or marriage; spouse; grandparent or grandchild. 44 9. "Legal claim" means a bona fide civil claim or cause of action. 45 10. "Resolution date" means the date the funded amount, plus the 46 agreed upon charges, are delivered to the consumer litigation funding 47 company by the consumer, the consumer's attorney or otherwise. 48 § 899-ddd. Contract requirements; right of rescission. 1. All consumer 49 litigation funding contracts shall meet the following requirements: 50 (a) a contract shall be written in a clear and coherent manner using 51 words with common, everyday meanings to enable the average consumer who 52 makes a reasonable effort under ordinary circumstances to read and 53 understand the terms of the contract without having to obtain the 54 assistance of a professional; 55 (b) the contract shall be completely filled in when presented to the 56 consumer for signature;S. 9105 3 1 (c) the contract shall contain, in twelve point bold type font, a 2 right of rescission, allowing the consumer to cancel the contract with- 3 out penalty or further obligation if, within ten business days after the 4 funding date, the consumer returns to the consumer litigation funding 5 company the full amount of the disbursed funds; 6 (d) the contract shall contain the initials of the consumer on each 7 page; 8 (e) a statement that there are no fees or charges to be paid by the 9 consumer other than what is disclosed on the disclosure form; 10 (f) in the event the consumer seeks more than one litigation funding 11 contract from the same company, a disclosure providing the cumulative 12 amount due from the consumer for all transactions, including charges 13 under all contracts, if repayment is made any time after the contracts 14 are executed; 15 (g) a statement of the maximum amount the consumer may be obligated to 16 pay under the contract other than in a case of material breach, fraud or 17 misrepresentation by or on behalf of the consumer; and 18 (h) clear and conspicuous detail of how charges, including any appli- 19 cable fees, are incurred or accrued. 20 2. The contract shall contain a written acknowledgement by the attor- 21 ney retained by the consumer in the legal claim that attests to the 22 following: 23 (a) the attorney has reviewed the mandatory disclosures in section 24 eight hundred ninety-nine-ggg of this article with the consumer; 25 (b) the attorney is being paid on a contingency basis pursuant to a 26 written fee agreement; 27 (c) all proceeds of the legal claim will be disbursed via either the 28 trust account of the attorney or a settlement fund established to 29 receive the proceeds of the legal claim on behalf of the consumer; 30 (d) the attorney is obligated to disburse funds from the legal claim 31 and take any other steps to ensure that the terms of the litigation 32 funding contract are fulfilled; 33 (e) the attorney has not received a referral fee or other consider- 34 ation from the consumer litigation funding company in connection with 35 the consumer litigation funding, nor will the attorney receive such fee 36 or other consideration in the future; and 37 (f) the attorney in the legal claim has provided no tax, public or 38 private benefit planning, or financial advice regarding this trans- 39 action. 40 3. Should the acknowledgement required in paragraph (c) of subdivision 41 two of this section not be completed by the attorney or firm retained by 42 the consumer in the legal claim, the contract shall be null and void. 43 The contract will remain valid and enforceable in the event the consumer 44 terminates the initial attorney and/or retains a new attorney with 45 respect to the legal claim. 46 4. Notwithstanding paragraph b of subdivision three of section 5-501 47 of the general obligations law, no prepayment penalties or fees shall be 48 charged or collected on consumer litigation funding. A prepayment 49 penalty on consumer litigation funding shall be unenforceable. 50 § 899-eee. Prohibitions and charge limitations. 1. Consumer liti- 51 gation funding companies shall be prohibited from: 52 (a) paying or offering to pay commissions, referral fees, or other 53 forms of consideration to any attorney, law firm, medical provider, 54 chiropractor or physical therapist or any of their employees for refer- 55 ring a consumer to the company;S. 9105 4 1 (b) accepting any commissions, referral fees, rebates or other forms 2 of consideration from an attorney, law firm, medical provider, chiro- 3 practor or physical therapist or any of their employees; 4 (c) intentionally advertising materially false or misleading informa- 5 tion regarding its products or services; 6 (d) referring, in furtherance of an initial legal funding, a customer 7 or potential customer to a specific attorney, law firm, medical provid- 8 er, chiropractor or physical therapist or any of their employees; 9 provided, however, if a customer needs legal representation, the company 10 may refer the customer to a local or state bar association referral 11 service; 12 (e) knowingly providing funding to a consumer who has previously 13 assigned and/or sold a portion of the consumer's right to proceeds from 14 his or her legal claim without first making payment to and/or purchasing 15 a prior unsatisfied consumer litigation funding company's entire funded 16 amount and contracted charges, unless a lesser amount is otherwise 17 agreed to in writing by the consumer litigation funding companies, 18 except that multiple companies may agree to contemporaneously provide 19 funding to a consumer provided that the consumer and the consumer's 20 attorney consent to the arrangement in writing; 21 (f) receiving any right to, or making, any decisions with respect to 22 the conduct of the underlying legal claim or any settlement or resol- 23 ution thereof. The right to make such decisions shall remain solely with 24 the consumer and the attorney in the legal claim; 25 (g) attempting to obtain a waiver of any remedy or right by the 26 consumer, including but not limited to the right to trial by jury; and 27 (h) knowingly paying or offering to pay for court costs, filing fees 28 or 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 or her retained 34 attorney shall not have a financial interest in the consumer litigation 35 funding company offering consumer litigation funding to that consumer. 36 4. The attorney may only disclose privileged information to the 37 consumer litigation funding company with the written consent of the 38 consumer. 39 § 899-fff. Contracted amounts. The contracted amount to be paid to the 40 consumer litigation company shall be a predetermined amount based upon 41 intervals of time from the funding date through the resolution date, and 42 shall not be determined as a percentage of the recovery from the legal 43 claim. 44 § 899-ggg. Disclosures. All consumer litigation funding contracts 45 shall contain the disclosures specified in this section, which shall 46 constitute material terms of the contract. Unless otherwise specified, 47 the disclosures shall be typed in at least twelve point bold type font 48 and be placed clearly and conspicuously within the contract, as follows: 49 1. On the front page under appropriate headings, language specifying: 50 (a) the funded amount to be paid to the consumer by the consumer liti- 51 gation funding company; 52 (b) an itemization of one-time charges; 53 (c) the maximum total amount to be assigned by the consumer to the 54 company, including the funded amount and all charges; and 55 (d) a payment schedule to include the funded amount and charges, list- 56 ing all dates and the amount due at the end of each one hundred eightyS. 9105 5 1 day period from the funding date, until the date the maximum amount due 2 to the company pursuant to the contract is paid. 3 2. Pursuant to the provisions set forth in this section, within the 4 body of the contract: "Consumer's right to cancellation: you may cancel 5 this contract without penalty or further obligation within ten business 6 days after the funding date if you return to the consumer litigation 7 funding company the full amount of the disbursed funds." 8 3. The consumer litigation funding company shall have no role in 9 deciding whether, when and how much the legal claim is settled for, 10 however, the consumer and consumer's attorney must notify the company of 11 the outcome of the legal claim by settlement or adjudication prior to 12 the resolution date. The company may seek updated information about the 13 status of the legal claim but in no event shall the company interfere 14 with the independent professional judgement of the attorney in the 15 handling of the legal claim or any settlement thereof. 16 4. Within the body of the contract, in all capital letters in at least 17 twelve point bold type font contained within a box: "THE FUNDED AMOUNT 18 AND AGREED UPON CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR 19 LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAIL- 20 ABLE PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF 21 THE CONSUMER LITIGATION FUNDING COMPANY) ANYTHING IF THERE ARE NO 22 PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL 23 TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST (INSERT NAME 24 OF CONSUMER LITIGATION FUNDING COMPANY)." 25 5. Located immediately above the place on the contract where the 26 consumer's signature is required, in twelve point bold type font: "Do 27 not sign this contract before you read it completely. Do not sign this 28 contract if it contains any blank spaces. You are entitled to a 29 completely filled-in copy of the contract before you sign this contract. 30 You should obtain the advice of any attorney. Depending on the circum- 31 stances, you may want to consult a tax, public or private benefits plan- 32 ning, or financial professional. You acknowledge that your attorney in 33 the legal claim has provided no tax, public or private benefit planning, 34 or financial advice regarding this transaction. You further acknowledge 35 that your attorney has explained the terms and conditions of the consum- 36 er litigation funding contract." 37 6. A copy of the executed contract shall promptly be delivered to the 38 attorney for the consumer. 39 § 899-hhh. Violations. 1. Any company found in willful violation of 40 any provision of this article in a specific funding case: (a) waives its 41 right to recover both the funded amount and any and all charges, as 42 defined in subdivision two of section eight hundred ninety-nine-ccc of 43 this article, in that particular case; and (b) shall be liable for a 44 civil penalty of not more than five thousand dollars for each violation, 45 which shall accrue to the state of New York and may be recovered in a 46 civil action brought by the attorney general. 47 2. Nothing in this article shall be construed to restrict the exercise 48 of powers or the performance of the duties of the New York state attor- 49 ney general, which he or she is authorized to exercise or perform by 50 law. 51 § 899-iii. Assignability; liens. 1. The contingent right to receive an 52 amount of the potential proceeds of a legal claim is assignable by a 53 consumer. 54 2. Only attorney's liens related to the legal claim which is the 55 subject of the consumer litigation funding or medicare or other statuto- 56 ry liens related to the legal claim shall take priority over any lien ofS. 9105 6 1 the consumer litigation funding company. All other liens shall take 2 priority by normal operation of law. 3 § 899-jjj. Effect of communication on privileges. All communication 4 between the consumer's attorney in the legal claim and the consumer 5 legal funding company as it pertains to the consumer legal funding shall 6 fall within the scope of the attorney client privilege, including, with- 7 out limitation, the work-product doctrine. 8 § 899-kkk. Registration. 1. Unless a consumer litigation funding 9 company has first registered with the state of New York pursuant to this 10 article, the company may not engage in the business of consumer liti- 11 gation funding in this state. 12 2. An applicant's registration must be filed in the manner prescribed 13 by the secretary of state and must contain all the information required 14 by the department of state to make an evaluation of the character and 15 fitness of the applicant company. The initial application must be accom- 16 panied by a five hundred dollar fee. A renewal registration must include 17 a two hundred dollar fee. A registration must be renewed every two years 18 and expires on the thirtieth of September. 19 3. A certificate of registration may not be issued unless the depart- 20 ment of state, upon investigation, finds that the character and fitness 21 of the applicant company, and of the officers and directors thereof, are 22 such as to warrant belief that the business will be operated honestly 23 and fairly within the purposes of this article. 24 4. Every registrant shall also, at the time of filing such applica- 25 tion, file with the department of state, if the department of state so 26 requires, a bond satisfactory to the department of state in an amount 27 not to exceed fifty thousand dollars. In lieu of the bond at the option 28 of the registrant, the registrant may post an irrevocable letter of 29 credit. The terms of the bond must run concurrent with the period of 30 time during which the registration will be in effect. The bond must 31 provide that the registrant will faithfully conform to and abide by the 32 provisions of this article and to all rules lawfully made by the admin- 33 istrator under this act and to any such person or persons any and all 34 amounts of money that may become due or owing to the state or to such 35 person or persons from the registrant under and by virtue of this arti- 36 cle during the period for which the bond is given. 37 5. Upon written request, the applicant shall be entitled to a hearing 38 on the question of the applicant's qualifications for registration if: 39 (a) the department of state has notified the applicant in writing that 40 the application has been denied, or 41 (b) the department of state has not issued a registration within sixty 42 days after the application for the registration was filed. 43 6. A request for a hearing may not be made more than fifteen days 44 after the department has mailed a written notice to the applicant that 45 the application has been denied and stating in substance the department 46 of state's findings supporting denial of the application. 47 7. Notwithstanding the prior approval requirement of subdivision one 48 of this section, a consumer litigation funding company that registered 49 with the department of state between the effective date of this article 50 or when the department of state has made applications available to the 51 public, whichever is later, and one hundred eighty days thereafter may 52 engage in consumer litigation funding while the company's registration 53 is pending approval with the department of state. All funding agreements 54 entered into prior to the effective date of this article are not subject 55 to the terms of this article.S. 9105 7 1 8. No consumer litigation funding company may use any form of consumer 2 litigation funding contract in this state unless it has been filed with 3 the department of state in accordance with the filing procedures set 4 forth by the secretary of state. 5 9. The secretary of state is hereby authorized to adopt rules and 6 regulations to implement the provisions of this section as needed. 7 § 899-lll. Reporting. 1. Each consumer litigation funding company that 8 engages in business in the state shall submit a report to the department 9 of financial services no later than the thirty-first of January of each 10 year specifying: 11 (a) number of consumer litigation fundings by the company; 12 (b) summation of funded amounts in dollar figure; and 13 (c) annual percentage charged to each consumer where repayment was 14 made. 15 2. The department of state shall make these figures available to the 16 public, in a manner which maintains the confidentiality of the name of 17 each company and consumer, no later than one year after the reports are 18 delivered. 19 § 899-mmm. Severability. If any provision of this article is, for any 20 reason, declared unconstitutional or invalid, in whole or in part, by 21 any court of competent jurisdiction, such portion shall be deemed sever- 22 able, and such unconstitutionality or invalidity shall not affect the 23 validity of the remaining portions of this article, which remaining 24 portions shall continue in full force and effect. 25 § 4. This act shall take effect on the one hundred eightieth day after 26 it shall have become a law; provided, however, it shall not apply or in 27 any way affect or invalidate any consumer litigation funding previously 28 effectuated prior to the effective date of this act.