What's happening
This bill regulates third party litigation funding companies in New York, setting contract requirements, prohibitions, registration, and penalties for violations.
Why it matters
Protects consumers from predatory practices. by capping the charges that litigation funding companies can collect, linking them to New York’s criminal usury laws and making contracts that exceed this rate legally unenforceable and considered usurious.
Increases transparency and fairness. by requiring clear disclosure of all fees, charges, and repayment terms in contracts, including itemized schedules and the right for consumers to rescind the contract within ten business days without penalty.
Reduces conflicts of interest and preserves legal rights. by prohibiting attorneys, law firms, or medical providers from receiving referral fees or having financial interests in funding companies, and by banning any waivers of legal remedies, rights to trial by jury, or attorney-client privilege violations.
Establishes oversight and accountability. by mandating registration and periodic renewal with the Department of Financial Services, which will assess the character and fitness of companies, and imposing strict penalties (forfeiture of repayment and fees) for violations—potentially deterring abusive or noncompliant actors from operating in New York.
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Who cares
Consumers seeking litigation funding
The bill would require itemized fee disclosures, allow cancellation within ten business days if funds are returned, and protect penalty-free prepayment before settlement.
Consumer litigation funding companies
The bill would require registration, cap charges, prohibit contract assignments and referral payments, and forfeit recovery of principal and fees in any funding case involving a violation.
Attorneys representing funded consumers
The bill would require written acknowledgements about contingency fees and referral payments and prohibit financial interests in their clients’ funding companies.
New York Department of Financial Services
The bill would require the department to register funding companies, assess their character and fitness, and administer biennial registration renewals.
Headline styles
Regulate Lawsuit Loan Companies
Plain English, a few words. Used as the page title.
Sponsors
Senator · Senate District 7
3 Co-sponsors
History
- Referred to consumer protection
- Referred to consumer protection
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Regulate Lawsuit Funding Companies
In Assembly Committee · Consumer Affairs And Protection · Sponsor William Magnarelli
Full text
3 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
4478
2019-2020 Regular Sessions
IN SENATE
March 12, 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 third party litigation financing
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. The general business law is amended by adding a new article 39-H to read as follows:
ARTICLE 39-H
THIRD PARTY LITIGATION FINANCING Section 899-ccc. Definitions.
899-ddd. Contract requirements.
899-eee. Prohibitions.
899-fff. Registration.
899-ggg. Penalty for violation.
§ 899-ccc. Definitions. As used in this article, the following terms shall have the following meanings:
1. "Charges" shall mean the amount of money to be paid to the consumer litigation funding company that exceeds the funded amount of principal loan.
2. "Consumer litigation funding company" shall mean a person or entity that enters into a consumer litigation funding contract to provide nonrecourse funding of no more than five hundred thousand dollars to a consumer.
3. "Consumer litigation funding contract" shall mean a contract to provide non-recourse funding of no more than five hundred thousand dollars to a consumer on the contingent right to receive the funded amount and agreed upon charges obtained in the event of a settlement, judgment or award.
4. "Funded amount" shall mean the amount of money provided to the consumer in consumer litigation financing.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD09439-01-9
S. 4478 2
5. "Resolution date" shall mean the date the funded amount and agreed upon charges are delivered to the consumer litigation financing company.
§ 899-ddd. Contract requirements. 1. Consumer litigation funding contracts shall contain a right of rescission, allowing the consumer to cancel the consumer litigation funding contract without a penalty if the consumer returns the full amount of disbursed funds to the company within ten business days.
2. Consumer litigation funding contracts shall contain a written acknowledgement by the attorney retained by the consumer that attests:
(a) the attorney is being paid on a contingency basis pursuant to a written fee agreement; and
(b) the attorney is not receiving a referral fee from the litigation funding company in connection with the consumer's funding.
3. Consumer litigation funding contracts shall clearly outline a scheduled fee structure that outlines repayment terms including:
(a) the funded amount plus charges written out as itemized amounts;
(b) the charges outlined as a percentage amount exceeding the funded amount; and
(c) itemized one-time fees including paperwork processing and administrative fees.
4. Consumer litigation funding contracts shall contain a no penalty provision for the pre-payment of the funded amount prior to the settlement of his or her case. Such provision shall release the consumer from any obligation to share his or her settlement or verdict.
§ 899-eee. Prohibitions. 1. Consumer litigation funding companies shall be prohibited from paying, accepting or offering referral fees or any type of consideration to and from any medical providers, licensed therapists or attorneys for referring a consumer to the company for the purpose of entering into a consumer litigation funding contract.
2. The company shall be prohibited from making any inquiries with the consumer's representative attorney that would violate the terms of the attorney-client privilege at any point in time.
3. No attorney or law firm retained by a consumer who has entered into a consumer litigation funding contract with a consumer litigation funding company may have a financial interest in said company.
4. Consumer litigation funding companies shall be prohibited from attempting to obtain, or obtaining a waiver of any remedy, including but not limited to, compensatory, statutory or punitive damages, that the consumer might otherwise have.
5. Consumer litigation funding companies shall be prohibited from attempting to effect arbitration or otherwise effect waiver of a consumer's right to trial by jury for complaints arising from the consumer litigation funding contract.
6. Consumer litigation funding companies shall be prohibited from assigning a consumer litigation funding contract in whole or in part.
7. Maximum amount of charges:
(a) the maximum amount of charges which may be assessed pursuant to a consumer litigation funding contract shall not be in excess of the rate prescribed in section 190.42 of the penal law (criminal usury in the first degree), when expressed as a proportion of the funded amount; and
(b) any consumer litigation funding contract which exceeds such rate shall be considered usurious as defined by section 5-501 of the general obligations law.
§ 899-fff. Registration. 1. Each consumer litigation funding company that wishes to engage in business in the state of New York shall first register with the New York department of financial services.
S. 4478 3
2. Each applicant's registration must be filed in a manner prescribed by the New York department of financial services with an initial accompanied fee of five hundred dollars. Registrations must be renewed every two years on or before the thirtieth day of September.
3. The New York department of financial services shall issue certificates of registration after both understanding and attesting to the character and fitness of the applicant company with sufficient reason to believe the company will operate honestly and fairly.
§ 899-ggg. Penalty for violation. Any company found in violation of any provisions of this article in a specific funding case, waives its right to recover both the funded amount and any additional fees in that particular case.
§ 2. This act shall take effect on the one hundred eightieth day after it shall have become a law.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
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 consumer 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 consumer litigation financing and the regu- lation of this industry. Section 899-ddd sets forth contract require- ments for third party consumer litigation financing companies. Section 899-eee sets for prohibitions for third party consumer litigation financing companies and all parties involved in funded cases. Section 899-fff sets forth registration requirements for third party consumer 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.
Justification
Third Party consumer litigation financing emerged as an industry in the US in the1990s. 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 State, which will have discretionary regulation over the indus- try. 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 stat- ute. 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
S. 3911B of 2017/2018; Advanced to Third Reading S. 8006, Passed Senate in 2016.
Effective date
This act shall take effect on the 180th day.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.