Litigation or Lawsuit Funding Transactions 2015 Legislation

Heather Morton 1/8/2016

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 2015 legislative session, 10 states addressed lawsuit financing transactions. Two states enacted legislation: Arkansas regulated consumer lawsuit lending. Vermont defined consumer litigation funding and directed the commissioner of Financial Regulation and the attorney general to report by Dec. 1, 2015, on recommendation/draft legislation to balance (1) consumer access to funds and (2) protecting consumers against predatory practices.

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.

State: Bill Number: Bill Summary:
Litigation or Lawsuit Funding Transactions 2015 Legislation
Alabama

H.B. 160

Passed House 4/23/15

Relates to the extension of money or credit to consumers for a purpose other than the prosecution of a dispute 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 exclusively or primarily to the amount recovered by the consumer in a dispute. Defines the terms amount financed, consumer, consumer lawsuit lender, consumer lawsuit lending, consumer lawsuit lending agreement, dispute and finance charge. Provides for the maximum finance charge under a consumer lawsuit lending agreement without regard to the amount financed or the manner in which the transaction is structured. Provides that a consumer lawsuit lender is required to be licensed under §5-19-22 of the Code of Alabama 1975, to engage in consumer lawsuit lending transactions without regard to the number of extensions of credit the consumer lawsuit lender made or arranged in the preceding calendar year. Provides that a consumer lawsuit lender is subject to the provisions of §§5-19-16, 5-19-19, 5-19-23, 5-19-24, 5-19-25, and 5-19-26, Code of Alabama 1975. Provides that the superintendent of Banks of the State Banking Department is authorized to issue regulations and interpretations of this act; to provide remedies for violations of this act by a consumer lawsuit lender.
Alabama

S.B. 68

Indefinitely postponed 6/3/15

This bill regulates the providing of money or credit to a consumer pursuant to an agreement under which the consumer is not prohibited from using the money or credit for a purpose other than prosecuting a dispute, and under which 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 exclusively or primarily to the amount recovered by the consumer in a dispute. This bill defines provider of money or credit as a consumer lawsuit lender. This bill provides that each provision of money or credit would be deemed to be a consumer loan and the maximum finance charge on the loan would be as provided in this bill, regardless of the amount of the loan or credit provided. This bill requires each consumer lawsuit lender to obtain a license under §5-19-22 of the Code of Alabama 1975. This bill provides that the lender would be subject to §§5-19-16, 5-19-19, 5-19-23, 5-19-24, 5-19-25, and 5-19-26, Code of Alabama 1975. This bill allows the superintendent of Banks of the State Banking Department to issue regulations and interpretations under the act. This bill provides that criminal penalties be provided for willful violation of the maximum finance charge provision or the requirement that the consumer lawsuit lender must obtain a license.

Alaska None  
Arizona

S.B. 1403

Passed Senate 3/5/15

Establishes consumer lawsuit loans and caps the annual rate of interest for a lawsuit loan at 36 percent.

Arkansas

S.B. 541

Withdrawn by author 4/2/15

Concerns the regulation of civil proceeding advance payment contracts and amends the revenue classification law and the securities department fund.

Arkansas

S.B. 882

Signed by governor 4/1/15, Act 915

Regulates consumer lawsuit lending.

California None  
Colorado None  
Connecticut None  
Delaware None  
District of Columbia None  
Florida None  
Georgia None  
Guam Not available  
Hawaii None  
Idaho None  
Illinois S.B. 1396

Creates the Civil Justice Funding Act. Establishes requirements for civil justice funding contracts, prohibitions on civil justice funding companies, disclosure requirements, limitations on fees, prohibitions on attorneys, and a requirement to register with the Department of Financial and Professional Regulation before engaging in civil justice funding.

Illinois

S.B. 1397

Creates the Non-Recourse Consumer Lawsuit Funding Act. Provides that all contracts for non-recourse consumer lawsuit 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 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 percent 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, 2016. 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. 1340

Passed House 2/3/15

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 financial institutions (department). 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 limits on the funded amount and specifications for the CPAP contract amount. Permits the department to take certain actions to: (1) determine compliance with; and (2) pursue remedies for violations of; these provisions. Permits the department to adopt rules to implement these provisions. Specifies that the Uniform Consumer Credit Code does not apply to a CPAP transaction.

Indiana

S.B. 373

To conference committee 4/20/15

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 financial institutions (department). 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 limits on the funded amount and specifications for the CPAP contract amount. Permits the department to take certain actions to: (1) determine compliance with; and (2) pursue remedies for violations of; these provisions. Permits the department to adopt rules to implement these provisions. Specifies that the Uniform Consumer Credit Code does not apply to a CPAP transaction.

Iowa None  
Kansas None  
Kentucky None  
Lousiana None  
Maine None  
Maryland None  
Massachusetts None  
Michigan None  
Minnesota None  
Mississippi None  
Missouri H.B. 26

This bill establishes the Civil Justice Funding Model Act that requires all civil justice fundings to meet certain specified requirements. The civil justice funding company must provide the consumer's attorney with a written notification of the funding provided to the consumer within three business days of the funding date. A civil justice funding company is prohibited from specified activities and must require the contracted amount to be paid to the company to be set as a predetermined amount based on intervals of time from the funding date through the resolution date and not be determined as a percentage of the recovery from the legal claim. All civil justice funding contracts must contain certain disclosures and, unless otherwise specified, the disclosures must be typed in at least 12-point bold-type font and be placed clearly and conspicuously within the contract as specified. These provisions must not be construed to restrict the exercise of powers or the performance of the duties of the Missouri attorney general that he or she is authorized to exercise or perform by law. If a court determines that a civil justice funding company has intentionally violated these provisions with regard to a specific civil justice funding, the company must only be entitled to recover the funded amount provided to the consumer in the specific civil justice funding and cannot be entitled to any additional charges.

Missouri H.B. 512

This bill establishes the Civil Litigation Funding Act that requires all civil litigation fundings to meet certain specified requirements. The civil litigation funding company must provide the consumer's attorney with a written notification of the funding provided to the consumer within three business days of the funding date. A civil litigation funding company is prohibited from specified activities and must require the contracted amount to be paid to the company to be set as a predetermined amount based on intervals of time from the funding date through the resolution date and not be determined as a percentage of the recovery from the legal claim. The company cannot impose a charge greater than 21 percent of the funded amount annually. A funding contract cannot be valid if it is written for a time period of more than 30 months and cannot be automatically renewed. All civil litigation funding contracts must contain certain disclosures and, unless otherwise specified, the disclosures must be typed in at least 12-point bold-type font and be placed clearly and conspicuously within the contract as specified.

These provisions must not be construed to restrict the exercise of powers or the performance of the duties of the Missouri attorney general that he or she is authorized to exercise or perform by law. If a court determines that a civil litigation funding company has intentionally violated these provisions with regard to a specific civil litigation funding, the company must only be entitled to recover the funded amount provided to the consumer in the specific civil litigation funding and cannot be entitled to any additional charges.

Missouri S.B. 360

This act establishes the Civil Litigation Funding Act. This act requires that all civil litigation funding contracts meet certain requirements, including that the contract be completely filled in when presented to the consumer, that it contain a right of rescission, that it contain the initials of the consumer on each page, and that it requires that the consumer to give direction to his or her attorney to notify the civil litigation funding company when the legal claim has been resolved. The civil litigation funding company shall also notify the consumer's attorney of the consumer litigation funding contract. This act also bans civil litigation funding companies from performing certain actions as set forth in this act. Under this act, a civil litigation funding company shall require the contracted amount paid to the funding company to be based upon intervals of time from the funding date through the resolution date, and not determined as a percentage of the recovery from the legal claim. Additionally, the aggregate of the original loan and any charges a civil litigation lending imposes shall not be greater than 33 percent of the settlement or resolution of the underlying legal claim, and no contract shall be valid if written for a period greater than 36 months. Further, all civil litigation funding contracts shall contain certain disclosures as set forth in this act. This act also contains provisions banning attorneys from engaging in certain practices. Under this act, all civil litigation funding companies are required to register with the Department of Insurance, Financial Institutions, and Professional Registration. Such registration shall contain information required by the Department to make an evaluation of the character and fitness of the company, and shall be accompanied by a $500 fee. Such registration be renewed every two years for a fee of $200. Along with filing an application with the Department, the company may also be required to provide a bond of $50,000 or an irrevocable letter of credit. Under certain conditions as set forth in this act, the civil litigation funding company may be entitled to a hearing.

Montana None  
Nebraska None  
Nevada None  
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 None  
N. Mariana Islands Not available  
Ohio None  
Oklahoma None  
Oregon None  
Pennsylvania None  
Puerto Rico None  
Rhode Island H.B. 5762

This bill makes litigation loan agreements subject to state usury statutes.

Rhode Island S.B. 590

This bill makes litigation loan agreements subject to state usury statutes.

South Carolina None  
South Dakota None  
Tennessee

H.B. 405

S.B. 511

Decreases the filing fee for the registration of litigation financiers who are not business entities or partnerships in this state, from $100 to $50.

Texas None  
Utah None  
Vermont H.B. 12

This bill proposes to regulate and license companies that advance funds to cover the expenses of consumers with a pending legal claim, in exchange for the right to receive a portion of the proceeds recovered by the consumer in the action, if any.

Vermont S.B. 3

This bill proposes to regulate and license companies that advance funds to cover the expenses of consumers with a pending legal claim, in exchange for the right to receive a portion of the proceeds recovered by the consumer in the action, if any.

Vermont

S.B. 73

Signed by governor 6/9/15, Act 55

Creates 8 V.S.A. §2246 governing consumer litigation funding. Defines “consumer litigation funding” as a nonrecourse transaction in which a person provides personal expense funds to a consumer to cover personal expenses while the consumer is a party to a civil action or legal claim and, in return, the consumer assigns to such person a contingent right to receive an amount of the proceeds of a settlement or judgment obtained from the consumer’s action or claim. Directs the commissioner of Financial Regulation and the attorney general to report by Dec. 1, 2015, on recommendation/draft legislation to balance (1) consumer access to funds and (2) protecting consumers against predatory practices.

Virginia None  
Virgin Islands None  
Washington None  
West Virginia None  
Wisconsin None  
Wyoming None  

 

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Heather Morton is a program principal in NCSL's Fiscal Affairs Program. She covers financial services, alcohol production and sales, and medical malpractice issues for NCSL.

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