Establishes contract requirements for third party litigation financing which includes requiring contracts to contain a right of rescission, a written acknowledgement by the attorney retained, a clear outline of the scheduled fee structure and a no penalty provision.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A9241C
SPONSOR: Simanowitz TITLE OF BILL: An act to amend the general business law, in relation
to third party litigation financing
PURPOSE OR GENERAL IDEA OF BILL:
The bill establishes specific guidelines and provisions to regulate the
third party litigation financing industry in New York State
SUMMARY OF PROVISIONS:
Section 1 amends the general business law by adding a new article
(39-H). The first part of this section, 899-ccc, establishes definitions
in relation to third party litigation financing and the regulation of
this industry. Section 899-ddd sets forth contract requirements for
third party litigation financing companies. Section 899- eee sets forth
prohibitions for third party litigation financing companies and all
parties involved in funded cases. Section 899-fff sets forth registra-
tion requirements for third party litigation financing companies to
legally practice in New York State by registering with the department of
financial services. Section 899-ggg establishes penalties for violating
any provisions of this article. Section 2 sets for the effective date.
JUSTIFICATION:
Third Party Litigation financing emerged as an industry in the US in the
1990s. By providing non-recourse litigation loans to consumers; this
money often helps to cover attorney costs for those who cannot afford
the upfront costs; companies only collect repayments in the event of an
award or settlement. However, as there is no recourse if the claimant
loses the suit, regular lending and collection caps do not apply to
these financing companies. As a result, collected fees have the poten-
tial to reach outrageous and even usurious rates.
The industry is currently unregulated, exposing potential clients to
risk. This legislation instructs companies to register with the Depart-
ment of Financial Services, which will have discretionary regulation
over the industry. Additionally, it mandates financing companies to
disclose their fee structure and repayment terms, better educating
consumers to the terms of their contract and provides means of recourse
against unscrupulous practices. Furthermore, this legislation subjects
these companies to abide by the maximum interest rates on loans put
forth by existing statute. This bill also sets guidelines to eliminate
potential conflicts of interest in the industry and establish penalties
for companies found in violation of these provisions.
FISCAL IMPLICATIONS:
None
LEGISLATIVE HISTORY:
This is a new bill
EFFECTIVE DATE:
This act shall take effect 180 days after the bill becomes law
