Bill Text: NY S08813 | 2017-2018 | General Assembly | Amended
Bill Title: Relates to consumer litigation funding; enacts the consumer litigation funding act.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2018-05-30 - PRINT NUMBER 8813A [S08813 Detail]
Download: New_York-2017-S08813-Amended.html
STATE OF NEW YORK ________________________________________________________________________ 8813--A IN SENATE May 22, 2018 ___________ Introduced by Sen. DeFRANCISCO -- read twice and ordered printed, and when printed to be committed to the Committee on Consumer Protection -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee 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: EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD16033-02-8S. 8813--A 2 1 1. "Advertise" means publishing or disseminating any written, aural, 2 electronic or printed communication or any communication by means of 3 recorded telephone messages or transmitted or broadcast on radio, tele- 4 vision, the internet or similar communications media, including audio 5 recordings, film strips, motion pictures and videos, published, dissem- 6 inated, circulated or placed before the public, directly or indirectly, 7 for the purpose of inducing a consumer to enter into a consumer liti- 8 gation funding. 9 2. "Charges" means the amount of money to be paid to the consumer 10 litigation funding company by or on behalf of the consumer, above the 11 funded amount provided by or on behalf of the company to a New York 12 consumer pursuant to this article. Charges include all administrative, 13 origination, underwriting or other fees no matter how denominated. Such 14 charges shall not exceed the maximum annual percentage rate applicable 15 to consumer credit extended to a member of the military as provided for 16 in Title 10, United States Code, section 987. 17 3. "Consumer litigation funding" means a non-recourse transaction in 18 which a consumer litigation funding company purchases and a consumer 19 assigns to the company a contingent right to receive an amount of the 20 potential proceeds of a settlement, judgment, award, or verdict obtained 21 in the consumer's legal claim. 22 4. "Consumer litigation funding company" or "company" means a person 23 or entity that enters into a consumer litigation funding contract with a 24 consumer. This term shall 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. 8813--A 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 five business days after 4 the funding date, the consumer either: 5 (i) returns 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 (ii) mails, by insured, certified, or registered United States mail, 9 to the address specified in the contract, a notice of cancellation and 10 includes in such mailing a return of the full amount of disbursed funds 11 in the form of the company's uncashed check or a registered or certified 12 check or money order; 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) to the best of the attorney's knowledge, the funded amounts and 31 any charges relating to the consumer litigation funding have been 32 disclosed to the consumer; 33 (b) the attorney is being paid on a contingency basis pursuant to a 34 written fee agreement; 35 (c) all proceeds of the legal claim will be disbursed via either the 36 trust account of the attorney or a settlement fund established to 37 receive the proceeds of the legal claim on behalf of the consumer; 38 (d) the attorney is following the written irrevocable instructions of 39 the consumer with regard to the consumer litigation funding; 40 (e) the attorney is obligated to disburse funds from the legal claim 41 and take any other steps to ensure that the terms of the litigation 42 funding contract are fulfilled; 43 (f) the attorney has not received a referral fee or other consider- 44 ation from the consumer litigation funding company in connection with 45 the consumer litigation funding, nor will the attorney receive such fee 46 or other consideration in the future; and 47 (g) the attorney in the legal claim has provided no tax, public or 48 private benefit planning, or financial advice regarding this trans- 49 action. 50 3. Should the acknowledgement required in paragraph (c) of subdivision 51 two of this section not be completed by the attorney or firm retained by 52 the consumer in the legal claim, the contract shall be null and void. 53 The contract will remain valid and enforceable in the event the consumer 54 terminates the initial attorney and/or retains a new attorney with 55 respect to the legal claim.S. 8813--A 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 his or her legal claim without first making payment to and/or purchasing 21 a prior unsatisfied consumer litigation funding company's entire funded 22 amount and contracted charges, unless a lesser amount is otherwise 23 agreed to in writing by the consumer litigation funding companies, 24 except that multiple companies may agree to contemporaneously provide 25 funding to a consumer provided that the consumer and the consumer's 26 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) knowingly paying or offering to pay for court costs, filing fees 32 or attorney's fees either during or after the resolution of the legal 33 claim, using funds from the consumer litigation funding transaction. 34 2. An attorney or law firm retained by the consumer in the legal claim 35 shall not have a financial interest in the consumer litigation funding 36 company offering consumer litigation funding to that consumer. 37 3. Any attorney who has referred the consumer to his or her retained 38 attorney shall not have a financial interest in the consumer litigation 39 funding company offering consumer litigation funding to that consumer. 40 § 899-fff. Contracted amounts. The contracted amount to be paid to the 41 consumer litigation company shall be a predetermined amount based upon 42 intervals of time from the funding date through the resolution date, and 43 shall not be determined as a percentage of the recovery from the legal 44 claim. 45 § 899-ggg. Disclosures. All consumer litigation funding contracts 46 shall contain the disclosures specified in this section, which shall 47 constitute material terms of the contract. Unless otherwise specified, 48 the disclosures shall be typed in at least twelve point bold type font 49 and be placed clearly and conspicuously within the contract, as follows: 50 1. On the front page under appropriate headings, language specifying: 51 (a) the funded amount to be paid to the consumer by the consumer liti- 52 gation funding company; 53 (b) an itemization of one-time charges; 54 (c) the maximum total amount to be assigned by the consumer to the 55 company, including the funded amount and all charges; andS. 8813--A 5 1 (d) a payment schedule to include the funded amount and charges, list- 2 ing all dates and the amount due at the end of each one hundred eighty 3 day period from the funding date, until the date the maximum amount due 4 to the company pursuant to the contract is paid. 5 2. Pursuant to the provisions set forth in this section, within the 6 body of the contract: "Consumer's right to cancellation: you may cancel 7 this contract without penalty or further obligation within five (5) 8 business days after the funding date if you either: 9 (a) return to the consumer litigation funding company the full amount 10 of the disbursed funds by delivering the company's uncashed check to the 11 company's office in person; or 12 (b) mail, by insured, certified or registered United States mail, to 13 the company at the address specified in the contract, a notice of 14 cancellation and include in such mailing a return of the full amount of 15 disbursed funds in the form of the company's uncashed check or a regis- 16 tered or certified check or money order." 17 3. The consumer litigation funding company shall have no role in 18 deciding whether, when and how much the legal claim is settled for, 19 however, the consumer and consumer's attorney must notify the company of 20 the outcome of the legal claim by settlement or adjudication prior to 21 the resolution date. The company may seek updated information about the 22 status of the legal claim but in no event shall the company interfere 23 with the independent professional judgement of the attorney in the 24 handling of the legal claim or any settlement thereof. 25 4. Within the body of the contract, in all capital letters in at least 26 twelve point bold type font contained within a box: "THE FUNDED AMOUNT 27 AND AGREED UPON CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR 28 LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAIL- 29 ABLE PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF 30 THE CONSUMER LITIGATION FUNDING COMPANY) ANYTHING IF THERE ARE NO 31 PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL 32 TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST (INSERT NAME 33 OF CONSUMER LITIGATION FUNDING COMPANY)." 34 5. Located immediately above the place on the contract where the 35 consumer's signature is required, in twelve point bold type font: "Do 36 not sign this contract before you read it completely. Do not sign this 37 contract if it contains any blank spaces. You are entitled to a 38 completely filled-in copy of the contract before you sign this contract. 39 You should obtain the advice of any attorney. Depending on the circum- 40 stances, you may want to consult a tax, public or private benefits plan- 41 ning, or financial professional. You acknowledge that your attorney in 42 the legal claim has provided no tax, public or private benefit planning, 43 or financial advice regarding this transaction. You further acknowledge 44 that your attorney has explained the terms and conditions of the consum- 45 er litigation funding contract." 46 6. A copy of the executed contract shall promptly be delivered to the 47 attorney for the consumer. 48 § 899-hhh. Violations. 1. Any company found in willful violation of 49 any provision of this article in a specific funding case, waives its 50 right to recover both the funded amount and any and all charges, as 51 defined in subdivision two of section eight hundred ninety-nine-ccc of 52 this article, in that particular case. 53 2. Nothing in this article shall be construed to restrict the exercise 54 of powers or the performance of the duties of the New York state attor- 55 ney general, which he or she is authorized to exercise or perform by 56 law.S. 8813--A 6 1 § 899-iii. Assignability; liens. 1. The contingent right to receive an 2 amount of the potential proceeds of a legal claim is assignable by a 3 consumer. 4 2. Nothing contained in this article shall be construed to cause any 5 consumer litigation funding transaction conforming to this article to be 6 deemed a loan or to be subject to any of the provisions governing loans. 7 A consumer litigation funding transaction that complies with this arti- 8 cle is not subject to any other statutory or regulatory provisions 9 governing loans or investment contracts. To the extent that this article 10 conflicts with any other law, this article supersedes any other law for 11 the purposes of regulating consumer litigation funding in the state of 12 New York. 13 3. Only attorney's liens related to the legal claim which is the 14 subject of the consumer litigation funding or medicare or other statuto- 15 ry liens related to the legal claim shall take priority over any lien of 16 the consumer litigation funding company. All other liens shall take 17 priority by normal operation of law. 18 § 899-jjj. Effect of communication on privileges. All communication 19 between the consumer's attorney in the legal claim and the consumer 20 legal funding company as it pertains to the consumer legal funding shall 21 fall within the scope of the attorney client privilege, including, with- 22 out limitation, the work-product doctrine. 23 § 899-kkk. Registration. 1. Unless a consumer litigation funding 24 company has first registered with the state of New York pursuant to this 25 article, the company may not engage in the business of consumer liti- 26 gation funding in this state. 27 2. An applicant's registration must be filed in the manner prescribed 28 by the secretary of state and must contain all the information required 29 by the department of state to make an evaluation of the character and 30 fitness of the applicant company. The initial application must be accom- 31 panied by a five hundred dollar fee. A renewal registration must include 32 a two hundred dollar fee. A registration must be renewed every two years 33 and expires on the thirtieth of September. 34 3. A certificate of registration may not be issued unless the depart- 35 ment of state, upon investigation, finds that the character and fitness 36 of the applicant company, and of the officers and directors thereof, are 37 such as to warrant belief that the business will be operated honestly 38 and fairly within the purposes of this article. 39 4. Every registrant shall also, at the time of filing such applica- 40 tion, file with the department of state, if the department of state so 41 requires, a bond satisfactory to the department of state in an amount 42 not to exceed fifty thousand dollars. In lieu of the bond at the option 43 of the registrant, the registrant may post an irrevocable letter of 44 credit. The terms of the bond must run concurrent with the period of 45 time during which the registration will be in effect. The bond must 46 provide that the registrant will faithfully conform to and abide by the 47 provisions of this article and to all rules lawfully made by the admin- 48 istrator under this act and to any such person or persons any and all 49 amounts of money that may become due or owing to the state or to such 50 person or persons from the registrant under and by virtue of this arti- 51 cle during the period for which the bond is given. 52 5. Upon written request, the applicant shall be entitled to a hearing 53 on the question of the applicant's qualifications for registration if: 54 (a) the department of state has notified the applicant in writing that 55 the application has been denied, orS. 8813--A 7 1 (b) the department of state has not issued a registration within sixty 2 days after the application for the registration was filed. 3 6. A request for a hearing may not be made more than fifteen days 4 after the department has mailed a written notice to the applicant that 5 the application has been denied and stating in substance the department 6 of state's findings supporting denial of the application. 7 7. Notwithstanding the prior approval requirement of subdivision one 8 of this section, a consumer litigation funding company that registered 9 with the department of state between the effective date of this article 10 or when the department of state has made applications available to the 11 public, whichever is later, and one hundred eighty days thereafter may 12 engage in consumer litigation funding while the company's registration 13 is pending approval with the department of state. All funding agreements 14 entered into prior to the effective date of this article are not subject 15 to the terms of this article. 16 8. No consumer litigation funding company may use any form of consumer 17 litigation funding contract in this state unless it has been filed with 18 the department of state in accordance with the filing procedures set 19 forth by the secretary of state. 20 9. The secretary of state is hereby authorized to adopt rules and 21 regulations to implement the provisions of this section as needed. 22 § 899-lll. Reporting. 1. Each consumer litigation funding company that 23 engages in business in the state shall submit a report to the department 24 of financial services no later than the thirty-first of January of each 25 year specifying: 26 (a) number of consumer litigation fundings by the company; 27 (b) summation of funded amounts in dollar figure; and 28 (c) annual percentage charged to each consumer where repayment was 29 made. 30 2. The department of state shall make these figures available to the 31 public, in a manner which maintains the confidentiality of the name of 32 each company and consumer, no later than one year after the reports are 33 delivered. 34 § 899-mmm. Severability. If any provision of this article is, for any 35 reason, declared unconstitutional or invalid, in whole or in part, by 36 any court of competent jurisdiction, such portion shall be deemed sever- 37 able, and such unconstitutionality or invalidity shall not affect the 38 validity of the remaining portions of this article, which remaining 39 portions shall continue in full force and effect. 40 § 4. This act shall take effect on the one hundred eightieth day after 41 it shall have become a law; provided, however, it shall not apply or in 42 any way affect or invalidate any consumer litigation funding previously 43 effectuated prior to the effective date of this act.
