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Litigation Funding Transactions 2014 Legislation

Litigation or Lawsuit Funding Transactions 2014 Legislation

Heather Morton 1/13/2015

 

Civil litigation can be very expensive if someone has suffered harm and wants to seek damages through the court system. Since the late 1990s, some businesses have offered plaintiffs money to help with their living expenses during their court cases, with repayment contingent upon the plaintiffs’ success in court, similar to contingency fee agreements used by law firms. But policymakers and others have raised questions about whether this financial assistance in lawsuits helps or hurts consumers and the justice system.

How does an individual lawsuit financing transaction work?

In a typical individual lawsuit financing transaction, someone who has suffered a personal injury and is pursuing a legal claim for the injury on a contingency fee basis, seeks financial assistance from a third party during the case’s progression. The financial assistance could be for living or medical expenses, rather than legal costs. After reviewing the eligibility of the pending claim to verify that the claim has merit and is likely to succeed, the lawsuit financing company will advance the funds to the consumer. The consumer will repay the funds if and when the client settles or wins the lawsuit. During the course of the financing, funding fees will accrue, and these fees can increase based on the time it takes to resolve the underlying legal claim.

In the 2014 legislative session, 12 states addressed lawsuit financing transactions. Two states enacted legislation: Oklahoma amended provisions regarding administrative fees for violations by consumer litigation funders and Tennessee created the Tennessee Litigation Financing Consumer Protection Act.

PLEASE NOTE: The summaries should be used for general informational purposes and not as a legal reference. NCSL is unable to answer questions or provide guidance to citizens or businesses regarding lawsuit funding laws and practices. If you have questions regarding the application of a state law to a specific lawsuit funding transaction, please contact the Office of the Attorney General in your state.

 

Please type in a state in the box below to be taken directly to the state's legislative information.

STATE BILL NUMBER BILL SUMMARY
Alabama

S.B. 231

Indefinitely postponed 4/1/14

This bill regulates the lending of money or the providing of credit to a consumer pursuant to an agreement under which the consumer may use the money or credit for a purpose other than prosecuting a dispute by the consumer, where repayment of the money or credit is conditioned upon the consumer's recovery of money in a dispute or where recourse against the consumer by the person providing the money or credit is limited primarily to the amount recovered by the consumer in a dispute. The bill provides that the person providing the money or credit would be defined to be a "consumer lawsuit lender" under the Alabama Mini-Code, Code of Alabama 1975, Chapter 19 of Title 5, and each provision of money or credit would be deemed to be a consumer loan that is subject to a certain monetary limitation on the amount of finance charge applicable to certain loans. This bill provides that the terms of a consumer lawsuit lending agreement that are not in compliance with the requirements of this bill would be deemed to be unconscionable. This bill provides that in any adjudication or arbitration of a dispute which is the subject of a consumer lawsuit lending agreement, all documents that the consumer has provided to the consumer lawsuit lender and a copy of the consumer lawsuit lending agreement would be required to be filed with the court or other tribunal and served on the opposing party without requirement that the opposing party must request them.
Alaska none  
Arizona none  
Arkansas none  
California none  
Colorado none  
Connecticut

none

 
Delaware none  
District of Columbia

none

 
Florida

none

 
Georgia

H.B. 801

Amends Chapter 3 of Title 7 of the Official Code of Georgia Annotated, relating to industrial loans, so as to provide for the regulation of consumer lawsuit lending and lenders; provides for definitions; provides for limitations regarding consumer lawsuit lending transactions including limitations on finance charges; amends Article 5 of Chapter 11 of Title 9 of the Official Code of Georgia Annotated, relating to depositions and discovery, so as to provide for the service and filing of certain documents regarding consumer lawsuit lending.
Guam

none

 
Hawaii

none

 
Idaho

none

 
Illinois

S.B. 3169

Creates the Non-Recourse Civil Litigation Funding Act. Provides that all contracts for non-recourse civil litigation funding shall be written, provide the total funding amount to the customer, itemize one-time fees, allow the customer to cancel contract within 10 business days following receipt of the funding amount without penalty or further obligation, and other specified criteria. Provides that any attorney's fee, Medicare lien, Medicaid lien, or health care provider lien takes priority over any lien of the non-recourse civil litigation funding company. Contains a provision concerning standards and practices of non-recourse civil litigation companies. Provides criteria for non-recourse civil litigation funding companies to receive and retain licenses, the closing of its business or surrendering of the license, and prohibited acts. Contains provisions for enforcement and remedies, rulemaking, bonding, and judicial review. Amends the Regulatory Sunset Act to provide the Non-Recourse Civil Litigation Funding Act to expire on May 31, 2015. Amends the Consumer Installment Loan Act provision concerning the application of the Act to exclude non-recourse civil litigation funding if requested. Amends the Consumer Fraud and Deceptive Business Practices Act to provide that a person who knowingly violates the Non-Recourse Civil Litigation Funding Act commits an unlawful practice.
Illinois

S.B. 3391

Creates the Non-Recourse Consumer Lawsuit Funding Act. Provides that all contracts for non-recourse consumer lawsuit funding shall be written, provides the total funding amount to the customer, itemize one-time fees, allows the customer to cancel contract within 10 business days following receipt of the funding amount without penalty or further obligation, and other specified criteria. Provides that any attorney's fee or medical lien takes priority over any lien of the non-recourse consumer lawsuit funding company. Contains a provision concerning standards and practices of non-recourse consumer lawsuit funding companies. Provides criteria for non-recourse consumer lawsuit funding companies to receive and retain licenses, the closing of its business or surrendering of the license, and prohibited acts. Contains provisions for enforcement, rulemaking, bonding, and judicial review. Provides that the total amount of financing provided by a non-recourse consumer lawsuit funding company per consumer per legal claim shall not exceed $40,000. Provides that under no circumstances shall the total amount of charges, interest, fees, or any other charges, when taken together, exceed 80% of the proceeds from the legal claim. Amends the Regulatory Sunset Act to provide for the repeal of the Non-Recourse Consumer Lawsuit Funding Act on May 31, 2015. Amends the Consumer Fraud and Deceptive Business Practices Act to provide that a person who knowingly violates the Non-Recourse Consumer Lawsuit Funding Act commits an unlawful practice. Amends the Consumer Installment Loan Act. Provides that no licensee shall engage in the business of providing non-recourse consumer lawsuit funding, except in compliance with that Act.
Indiana

H.B. 1205

Passed House 1/29/14

Defines a "civil proceeding advance payment transaction", or "CPAP transaction", as a nonrecourse transaction in which a person ("CPAP provider") provides to a consumer claimant in a civil proceeding a funded amount, the repayment of which is: (1) required only if the consumer claimant prevails in the civil proceeding; and (2) sourced from the proceeds of the civil proceeding. Requires a CPAP provider to register with the department of insurance. Sets forth requirements, including disclosure requirements, for a contract (CPAP contract) entered into by a CPAP provider and a consumer claimant. Sets forth certain requirements and prohibitions with respect to CPAP transactions, including specifications for the contract amount. Specifies that a violation is an unfair and deceptive act or practice in the business of insurance. Specifies that a CPAP transaction is not a consumer loan or a loan for purposes of the Uniform Consumer Credit Code.
Indiana H.B. 1308 Establishes a procedure by which a company may provide funding to the plaintiff in an action in exchange for the contingent right to receive a part of the potential proceeds of the action. Requires a company that offers funding to plaintiffs to register with the secretary of state.
Iowa

none

 
Kansas

none

 
Kentucky

none

 
Louisiana

H.B. 925

Enacts the Louisiana Consumer Lending Information and Protection Act – Litigation Lending; provides certain definitions, terms, conditions, procedures, requirements, and prohibitions; provides for legislative findings; provides for certain maximum finance charges and fees; provides for the form and terms of contracts; provides for consumers rights and remedies; authorizes certain private rights of action; provides for enforcement and remedies.
Louisiana

S.B. 299

To conference committee 5/30/14

Enacts the Civil Justice Funding Model Act; provides for definitions, terms, conditions, procedures, requirements, effects, and prohibitions; provides for form and terms of contract; provides for contract disclosures; provides for violations and penalties.
Louisiana S.B. 414 Enacts the Louisiana Consumer Lending Information and Protection Act – Litigation Lending; provides certain definitions, terms, conditions, procedures, requirements, and prohibitions; provides for legislative findings; provides for certain maximum finance charges and fees; provides for form and terms of contract; provides for consumers rights and remedies; authorizes certain private rights of action; to provide for enforcement and remedies.
Maine none  
Maryland

none

 
Massachusetts

none

 
Michigan

none

 
Minnesota

none

 
Mississippi

none

 
Missouri

H.B. 1789

This bill establishes the Missouri Nonrecourse Consumer Legal Lending Act. In its main provisions the bill; (1) Specifies the requirements all consumer legal lending contracts presented to a consumer must contain including any disclosures, notice of cancellation, the business address, an acknowledgment by the consumer and the attorney representing the consumer that they have reviewed the contract; (2) Allows a consumer to cancel a contract within five days of the lending date if the full loan amount is returned; (3) Requires a full contract be provided at the time it is signed reflecting the actual terms, conditions, fees, and repayment schedule; (4) Allows any party seeking relief from a consumer legal lending contract to bring suit in a court of competent jurisdiction; (5) Allows a consumer legal lending company the contingent right to receive the potential proceeds of a consumer's legal claim; (6) Specifies that certain liens attached to the consumer's legal claim take priority over any lien of the consumer legal lending company; (7) Prohibits a consumer legal lending company from reporting a consumer to any credit reporting agency if insufficient proceeds remain to pay the consumer legal lending company; (8) Allows consumer legal lending companies to charge an origination or delivery fee for processing a consumer's application, but prohibits assessing any additional fees beyond 1095 days from the original lending date. Fees may compound semi-annually, and must be computed based on the loan amount actually received; (9) Prohibits any practicing attorneys in this state from having a direct interest in a consumer legal lending company that engages in nonrecourse consumer legal lending transactions with their own clients or from receiving referral fees; (10) Prohibits consumer legal lending companies from engaging in certain practices as provided; (11) Requires all such companies, beginning June 1, 2015, to apply and register annually with the Department of Insurance, Financial Institutions, and Professional Registration. The application fee is $200 for calendar years 2015 and 2016 and will vary thereafter depending on administration costs; (12) Requires applications to be public record, contain information allowing the department to evaluate the company and allows the department to request certain documents during the application process; (13) Requires the department report annually to the General Assembly beginning January 1, 2017, regarding the status of consumer legal lending transactions in the state; and (14) Provides that any person or consumer legal lending company violating these provisions of law will be guilty of a class B misdemeanor for the first offense, a class A misdemeanor for the second offense, and a class D felony for all subsequent offenses.
Missouri

S.B. 542

This act specifies the requirements that each consumer legal lending contract must contain when presented to a consumer, including disclosures, a notice of cancellation, the consumer legal lending company's business address, an acknowledgment by the consumer that they have reviewed the contract, and an acknowledgment by the attorney representing the consumer in the legal claim as set forth in this act. A consumer may cancel a contract with a consumer legal lending company if they return the loan amount to the company within five days of the lending date. A full contract must be provided to the consumer at the time that it is signed. All contracts must fully reflect the actual terms, conditions, fees, and repayment schedule. Any party seeking relief from a consumer legal lending contract may bring suit in a court of competent jurisdiction. This act allows a consumer legal lending company the contingent right to receive the potential proceeds of a consumer's legal claim. In assigning proceeds of a legal claim, certain liens attached to the consumer's legal claim shall take priority over any lien of the consumer legal lending company. Once proceeds from a legal claim are available to distribute, if insufficient proceeds remain to pay the consumer legal lending company, the company shall not report the consumer to any credit reporting agency. Consumer legal lending companies may charge an origination or delivery fee for processing a consumer's application, but may not assess any additional fees beyond 1,095 days from the original lending date. Fees may compound semi-annually, and shall be computed based on the loan amount actually received by the consumer from the consumer legal lending company. Practicing attorneys in this state are prohibited from having a direct interest in a consumer legal lending company that engages in nonrecourse consumer legal lending transactions with their own clients or from receiving compensation from consumer legal lending companies. Consumer legal lending companies are also prohibited from engaging in certain practices as set forth in this act. Beginning June 1, 2015, all such companies must register annually with the Department of Insurance, Financial Institutions, and Professional Registration. For calendar years 2015 and 2016, the application fee is set at $200. For years thereafter, the application fee may vary depending upon the Department's costs for administering this act. The application shall be made a public record and shall contain information that allows the Department to make an evaluation of the company. The Department may request certain documents from the company during the application process. Beginning Jan. 1, 2017, the Department shall prepare and submit an annual report to the General Assembly on the status of consumer legal lending transactions in the state. Any person or consumer legal lending company who violates this act shall be guilty of a Class B misdemeanor for the first offense, a Class A misdemeanor for the second offense, and a Class D felony for all subsequent offenses.
Montana No regular 2014 session  
Nebraska none  
Nevada

No regular 2014 session

 
New Hampshire

none

 
New Jersey

A.B. 3699

S.B. 2541

Regulates litigation funding providers.
New Mexico

none

 
New York

none

.
North Carolina

none

 
North Dakota

No regular 2014 session

 
N. Mariana Islands

Not available

 
Ohio

none

 
Oklahoma

S.B. 1515

Signed by governor 5/15/14, Chapter 252

Relates to penalty for certain violation; authorizes a maximum administrative fee for violations by consumer litigation funders.
Oregon

none

 
Pennsylvania

none

 
Puerto Rico

none

 
Rhode Island S.B. 2588 This act makes litigation loan agreements subject to state interest and usury statutes.
South Carolina

none

 
South Dakota

none

 
Tennessee

H.B. 1242

S.B. 1360

Signed by governor 5/29/14, Chapter 819

Provides for the Tennessee Litigation Financing Consumer Protection Act; relates to a non-recourse transaction in which financing is provided to a consumer in return for a consumer assigning to the litigation financier a contingent right to receive an amount of the potential proceeds of the consumer's judgment, award, settlement or verdict; requires registration in the state as a litigation financier; regulates charges and fees; requires a surety bond; provides for a right of rescission.

Texas

No regular 2014 session

 
Utah

H.B. 407

Enacting clause stricken 3/13/14

This bill requires that a person that sues the state or a political subdivision disclose the person's source of funding.
Vermont

H.B. 824

This bill regulates and licenses companies that advance personal expense funds to cover the personal expenses of consumers who are parties to a civil action or legal claim in exchange for the right to receive a portion of the amount recovered in the action by the consumer, including the amount advanced, a rate of return, and fees.
Virginia

none

 
Virgin Islands

Not available

 
Washington

none

 
West Virginia

none

 
Wisconsin

none

 
Wyoming

none

 


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Heather Morton is a program principal in Fiscal Affairs. She covers financial services, medical liability and medical malpractice issues for NCSL.

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