S04555 Summary:

Add Art 39-H 899-ccc - 899-mmm, Gen Bus L
Enacts the consumer litigation funding act to promote consumer protections related to consumer litigation funding transactions; provides for contract requirements, including that the contract contain a no penalty provision for the pre-payment of the funded amount prior to the settlement of his or her case; makes related provisions.
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S04555 Actions:

05/14/20191ST REPORT CAL.690
05/15/20192ND REPORT CAL.
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S04555 Committee Votes:

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S04555 Floor Votes:

There are no votes for this bill in this legislative session.
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S04555 Text:

                STATE OF NEW YORK
                               2019-2020 Regular Sessions
                    IN SENATE
                                     March 14, 2019
        Introduced  by Sens. KAPLAN, ORTT -- read twice and ordered printed, and
          when printed to be committed to the Committee on Consumer Protection
        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.

        S. 4555                             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(b). Any contract which
    17  exceeds such rate shall be considered usurious  as  defined  by  section
    18  5-501 of the general obligations law.
    19    3.  "Consumer  litigation funding" means a non-recourse transaction in
    20  which a consumer litigation funding company  purchases  and  a  consumer
    21  assigns  to  the  company a contingent right to receive an amount of the
    22  potential proceeds of a settlement, judgment, award, or verdict obtained
    23  in the consumer's legal claim.
    24    4. "Consumer litigation funding company" or "company" means  a  person
    25  or  entity that enters into a consumer litigation funding contract of no
    26  more than five hundred thousand dollars with a consumer. This term shall
    27  not include:
    28    (a) an immediate family member of the consumer;
    29    (b) a bank, lender, financing entity, or other special purpose entity:
    30    (i) that provides financing to a consumer litigation funding  company;
    31  or
    32    (ii)  to which a consumer litigation funding company grants a security
    33  interest or transfers any rights or interest in  a  consumer  litigation
    34  funding; or
    35    (c) an attorney or accountant who provides services to a consumer.
    36    5. "Consumer" means a natural person who has a pending legal claim and
    37  who resides or is domiciled in New York.
    38    6.  "Funded  amount"  means  the  amount  of monies provided to, or on
    39  behalf of, the consumer in  the  consumer  litigation  funding.  "Funded
    40  amount" excludes charges.
    41    7.  "Funding date" means the date on which the funded amount is trans-
    42  ferred to the consumer by the consumer litigation funding company either
    43  by personal delivery or via wire,  ACH  or  other  electronic  means  or
    44  mailed by insured, certified or registered United States mail.
    45    8.  "Immediate family member" means a parent; sibling; child by blood,
    46  adoption, or marriage; spouse; grandparent or grandchild.
    47    9. "Legal claim" means a bona fide civil claim or cause of action.
    48    10. "Resolution date" means the  date  the  funded  amount,  plus  the
    49  agreed  upon  charges,  are delivered to the consumer litigation funding
    50  company by the consumer, the consumer's attorney or otherwise.
    51    § 899-ddd. Contract requirements; right of rescission. 1. All consumer
    52  litigation funding contracts shall meet the following requirements:
    53    (a) a contract shall be written in a clear and coherent  manner  using
    54  words  with common, everyday meanings to enable the average consumer who
    55  makes a reasonable effort  under  ordinary  circumstances  to  read  and

        S. 4555                             3
     1  understand  the  terms  of  the  contract  without  having to obtain the
     2  assistance of a professional;
     3    (b)  the  contract shall be completely filled in when presented to the
     4  consumer for signature;
     5    (c) the contract shall contain, in twelve  point  bold  type  font,  a
     6  right  of rescission, allowing the consumer to cancel the contract with-
     7  out penalty or further obligation if, within ten business days after the
     8  funding date, the consumer returns to the  consumer  litigation  funding
     9  company the full amount of the disbursed funds;
    10    (d)  the  contract  shall contain the initials of the consumer on each
    11  page;
    12    (e) a statement that there are no fees or charges to be  paid  by  the
    13  consumer other than what is disclosed on the disclosure form;
    14    (f)  in  the event the consumer seeks more than one litigation funding
    15  contract from the same company, a disclosure  providing  the  cumulative
    16  amount  due  from  the  consumer for all transactions, including charges
    17  under all contracts, if repayment is made any time after  the  contracts
    18  are executed;
    19    (g) a statement of the maximum amount the consumer may be obligated to
    20  pay under the contract other than in a case of material breach, fraud or
    21  misrepresentation by or on behalf of the consumer; and
    22    (h)  clear and conspicuous detail of how charges, including any appli-
    23  cable fees, are incurred or accrued.
    24    2. The contract shall contain a written acknowledgement by the  attor-
    25  ney  retained  by  the  consumer  in the legal claim that attests to the
    26  following:
    27    (a) the attorney has reviewed the  mandatory  disclosures  in  section
    28  eight hundred ninety-nine-ggg of this article with the consumer;
    29    (b)  the  attorney  is being paid on a contingency basis pursuant to a
    30  written fee agreement;
    31    (c) all proceeds of the legal claim will be disbursed via  either  the
    32  trust  account  of  the  attorney  or  a  settlement fund established to
    33  receive the proceeds of the legal claim on behalf of the consumer;
    34    (d) the attorney is obligated to disburse funds from the  legal  claim
    35  and  take  any  other  steps  to ensure that the terms of the litigation
    36  funding contract are fulfilled;
    37    (e) the attorney has not received a referral fee  or  other  consider-
    38  ation  from  the  consumer litigation funding company in connection with
    39  the consumer litigation funding, nor will the attorney receive such  fee
    40  or other consideration in the future; and
    41    (f)  the  attorney  in  the legal claim has provided no tax, public or
    42  private benefit planning, or  financial  advice  regarding  this  trans-
    43  action.
    44    3. Should the acknowledgement required in paragraph (c) of subdivision
    45  two of this section not be completed by the attorney or firm retained by
    46  the  consumer  in  the legal claim, the contract shall be null and void.
    47  The contract will remain valid and enforceable in the event the consumer
    48  terminates the initial attorney  and/or  retains  a  new  attorney  with
    49  respect to the legal claim.
    50    4.  Notwithstanding  paragraph b of subdivision three of section 5-501
    51  of the general obligations law, no prepayment penalties or fees shall be
    52  charged or collected on  consumer  litigation  funding.    A  prepayment
    53  penalty on consumer litigation funding shall be unenforceable.
    54    §  899-eee.  Prohibitions  and charge limitations.   1. Consumer liti-
    55  gation funding companies shall be prohibited from:

        S. 4555                             4
     1    (a) paying or offering to pay commissions,  referral  fees,  or  other
     2  forms  of  consideration  to  any  attorney, law firm, medical provider,
     3  chiropractor or physical therapist or any of their employees for  refer-
     4  ring a consumer to the company;
     5    (b)  accepting  any commissions, referral fees, rebates or other forms
     6  of consideration from an attorney, law firm,  medical  provider,  chiro-
     7  practor or physical therapist or any of their employees;
     8    (c)  intentionally advertising materially false or misleading informa-
     9  tion regarding its products or services;
    10    (d) referring, in furtherance of an initial legal funding, a  customer
    11  or  potential customer to a specific attorney, law firm, medical provid-
    12  er, chiropractor or  physical  therapist  or  any  of  their  employees;
    13  provided, however, if a customer needs legal representation, the company
    14  may  refer  the  customer  to  a local or state bar association referral
    15  service;
    16    (e) knowingly providing funding  to  a  consumer  who  has  previously
    17  assigned  and/or sold a portion of the consumer's right to proceeds from
    18  his or her legal claim without first making payment to and/or purchasing
    19  a prior unsatisfied consumer litigation funding company's entire  funded
    20  amount  and  contracted  charges,  unless  a  lesser amount is otherwise
    21  agreed to in writing  by  the  consumer  litigation  funding  companies,
    22  except  that  multiple  companies may agree to contemporaneously provide
    23  funding to a consumer provided that  the  consumer  and  the  consumer's
    24  attorney consent to the arrangement in writing;
    25    (f)  receiving  any right to, or making, any decisions with respect to
    26  the conduct of the underlying legal claim or any  settlement  or  resol-
    27  ution thereof. The right to make such decisions shall remain solely with
    28  the consumer and the attorney in the legal claim;
    29    (g)  attempting  to  obtain  a  waiver  of  any remedy or right by the
    30  consumer, including but not limited to the right to trial by jury; and
    31    (h) 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    4.  The  attorney  may  only  disclose  privileged  information to the
    41  consumer litigation funding company with  the  written  consent  of  the
    42  consumer.
    43    § 899-fff. Contracted amounts. The contracted amount to be paid to the
    44  consumer  litigation  company shall be a predetermined amount based upon
    45  intervals of time from the funding date through the resolution date, and
    46  shall not be determined as a percentage of the recovery from  the  legal
    47  claim.
    48    §  899-ggg.  Disclosures.  All  consumer  litigation funding contracts
    49  shall contain the disclosures specified in  this  section,  which  shall
    50  constitute  material  terms of the contract. Unless otherwise specified,
    51  the disclosures shall be typed in at least twelve point bold  type  font
    52  and be placed clearly and conspicuously within the contract, as follows:
    53    1. On the front page under appropriate headings, language specifying:
    54    (a) the funded amount to be paid to the consumer by the consumer liti-
    55  gation funding company;
    56    (b) an itemization of one-time charges;

        S. 4555                             5
     1    (c)  the  maximum  total  amount to be assigned by the consumer to the
     2  company, including the funded amount and all charges; and
     3    (d) a payment schedule to include the funded amount and charges, list-
     4  ing  all  dates and the amount due at the end of each one hundred eighty
     5  day period from the funding date, until the date the maximum amount  due
     6  to the company pursuant to the contract is paid.
     7    2.  Pursuant  to  the provisions set forth in this section, within the
     8  body of the contract:  "Consumer's right to cancellation: you may cancel
     9  this contract without penalty or further obligation within ten  business
    10  days  after  the  funding  date if you return to the consumer litigation
    11  funding company the full amount of the disbursed funds."
    12    3. The consumer litigation funding  company  shall  have  no  role  in
    13  deciding  whether,  when  and  how  much the legal claim is settled for,
    14  however, the consumer and consumer's attorney must notify the company of
    15  the outcome of the legal claim by settlement or  adjudication  prior  to
    16  the  resolution date. The company may seek updated information about the
    17  status of the legal claim but in no event shall  the  company  interfere
    18  with  the  independent  professional  judgement  of  the attorney in the
    19  handling of the legal claim or any settlement thereof.
    20    4. Within the body of the contract, in all capital letters in at least
    21  twelve point bold type font contained within a box: "THE  FUNDED  AMOUNT
    29    5.  Located  immediately  above  the  place  on the contract where the
    30  consumer's signature is required, in twelve point bold  type  font:  "Do
    31  not  sign this contract before you read it completely.  Do not sign this
    32  contract if it  contains  any  blank  spaces.  You  are  entitled  to  a
    33  completely filled-in copy of the contract before you sign this contract.
    34  You  should obtain the advice of any attorney.  Depending on the circum-
    35  stances, you may want to consult a tax, public or private benefits plan-
    36  ning, or financial professional. You acknowledge that your  attorney  in
    37  the legal claim has provided no tax, public or private benefit planning,
    38  or financial advice regarding this transaction.  You further acknowledge
    39  that your attorney has explained the terms and conditions of the consum-
    40  er litigation funding contract."
    41    6.  A copy of the executed contract shall promptly be delivered to the
    42  attorney for the consumer.
    43    § 899-hhh. Violations. 1. Any company found in  willful  violation  of
    44  any provision of this article in a specific funding case: (a) waives its
    45  right  to  recover  both  the  funded amount and any and all charges, as
    46  defined in subdivision two of section eight hundred  ninety-nine-ccc  of
    47  this  article,  in  that  particular case; and (b) shall be liable for a
    48  civil penalty of not more than five thousand dollars for each violation,
    49  which shall accrue to the state of New York and may be  recovered  in  a
    50  civil action brought by the attorney general.
    51    2. Nothing in this article shall be construed to restrict the exercise
    52  of  powers or the performance of the duties of the New York state attor-
    53  ney general, which he or she is authorized to  exercise  or  perform  by
    54  law.

        S. 4555                             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.  Only  attorney's  liens  related  to  the legal claim which is the
     5  subject of the consumer litigation funding or medicare or other statuto-
     6  ry liens related to the legal claim shall take priority over any lien of
     7  the consumer litigation funding company.  All  other  liens  shall  take
     8  priority by normal operation of law.
     9    §  899-jjj.  Effect  of communication on privileges. All communication
    10  between the consumer's attorney in the  legal  claim  and  the  consumer
    11  legal funding company as it pertains to the consumer legal funding shall
    12  fall within the scope of the attorney client privilege, including, with-
    13  out limitation, the work-product doctrine.
    14    §  899-kkk.  Registration.  1.  Unless  a  consumer litigation funding
    15  company has first registered with the state of New York pursuant to this
    16  article, the company may not engage in the business  of  consumer  liti-
    17  gation funding in this state.
    18    2.  An applicant's registration must be filed in the manner prescribed
    19  by the secretary of state and must contain all the information  required
    20  by  the  department  of state to make an evaluation of the character and
    21  fitness of the applicant company. The initial application must be accom-
    22  panied by a five hundred dollar fee. A renewal registration must include
    23  a two hundred dollar fee. A registration must be renewed every two years
    24  and expires on the thirtieth of September.
    25    3. A certificate of registration may not be issued unless the  depart-
    26  ment  of state, upon investigation, finds that the character and fitness
    27  of the applicant company, and of the officers and directors thereof, are
    28  such as to warrant belief that the business will  be  operated  honestly
    29  and fairly within the purposes of this article.
    30    4.  Every  registrant  shall also, at the time of filing such applica-
    31  tion, file with the department of state, if the department of  state  so
    32  requires,  a  bond  satisfactory to the department of state in an amount
    33  not to exceed fifty thousand dollars. In lieu of the bond at the  option
    34  of  the  registrant,  the  registrant  may post an irrevocable letter of
    35  credit. The terms of the bond must run concurrent  with  the  period  of
    36  time  during  which  the  registration  will be in effect. The bond must
    37  provide that the registrant will faithfully conform to and abide by  the
    38  provisions  of this article and to all rules lawfully made by the admin-
    39  istrator under this act and to any such person or persons  any  and  all
    40  amounts  of  money  that may become due or owing to the state or to such
    41  person or persons from the registrant under and by virtue of this  arti-
    42  cle during the period for which the bond is given.
    43    5.  Upon written request, the applicant shall be entitled to a hearing
    44  on the question of the applicant's qualifications for registration if:
    45    (a) the department of state has notified the applicant in writing that
    46  the application has been denied, or
    47    (b) the department of state has not issued a registration within sixty
    48  days after the application for the registration was filed.
    49    6. A request for a hearing may not be  made  more  than  fifteen  days
    50  after  the  department has mailed a written notice to the applicant that
    51  the application has been denied and stating in substance the  department
    52  of state's findings supporting denial of the application.
    53    7.  Notwithstanding  the prior approval requirement of subdivision one
    54  of this section, a consumer litigation funding company  that  registered
    55  with  the department of state between the effective date of this article
    56  or when the department of state has made applications available  to  the

        S. 4555                             7
     1  public,  whichever  is later, and one hundred eighty days thereafter may
     2  engage in consumer litigation funding while the  company's  registration
     3  is pending approval with the department of state. All funding agreements
     4  entered into prior to the effective date of this article are not subject
     5  to the terms of this article.
     6    8. No consumer litigation funding company may use any form of consumer
     7  litigation  funding contract in this state unless it has been filed with
     8  the department of state in accordance with  the  filing  procedures  set
     9  forth by the secretary of state.
    10    9.  The  secretary  of  state  is hereby authorized to adopt rules and
    11  regulations to implement the provisions of this section as needed.
    12    § 899-lll. Reporting. 1. Each consumer litigation funding company that
    13  engages in business in the state shall submit a report to the department
    14  of financial services no later than the thirty-first of January of  each
    15  year specifying:
    16    (a) number of consumer litigation fundings by the company;
    17    (b) summation of funded amounts in dollar figure; and
    18    (c)  annual  percentage  charged  to each consumer where repayment was
    19  made.
    20    2. The department of state shall make these figures available  to  the
    21  public,  in  a manner which maintains the confidentiality of the name of
    22  each company and consumer, no later than one year after the reports  are
    23  delivered.
    24    §  899-mmm. Severability. If any provision of this article is, for any
    25  reason, declared unconstitutional or invalid, in whole or  in  part,  by
    26  any court of competent jurisdiction, such portion shall be deemed sever-
    27  able,  and  such  unconstitutionality or invalidity shall not affect the
    28  validity of the remaining portions  of  this  article,  which  remaining
    29  portions shall continue in full force and effect.
    30    § 4. This act shall take effect on the one hundred eightieth day after
    31  it  shall have become a law; provided, however, it shall not apply or in
    32  any way affect or invalidate any consumer litigation funding  previously
    33  effectuated prior to the effective date of this act.
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