NY State Senate Bill 2019-S4478

Senate Bill S4478

2019-2020 Legislative Session

Relates to third party litigation financing

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Archive: Last Bill Status - In Senate Committee Consumer Protection Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 08, 2020	referred to consumer protection
Mar 12, 2019	referred to consumer protection

co-Sponsors

2019-S4478 (ACTIVE) - Details

See Assembly Version of this Bill:: A6866
Current Committee:: Senate Consumer Protection
Law Section:: General Business Law
Laws Affected:: Add Art 39-H §§899-ccc - 899-ggg, Gen Bus L
Versions Introduced in Other Legislative Sessions:: 2015-2016: S8006
2017-2018: S3911, A8653

2019-S4478 (ACTIVE) - Summary

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.

2019-S4478 (ACTIVE) - Sponsor Memo

                                
 
BILL NUMBER: S4478

SPONSOR: KAPLAN
 
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.

2019-S4478 (ACTIVE) - Bill Text download pdf

                            
 
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   4478
 
                        2019-2020 Regular Sessions
 
                             I N  S E N A T E
 
                              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 ASSEM-
 BLY, 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  NON-
 RECOURSE  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 WITH-
 IN 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 SCHE-
 DULED 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 ADMINIS-
 TRATIVE FEES.
   4.  CONSUMER  LITIGATION  FUNDING CONTRACTS SHALL CONTAIN A NO PENALTY
 PROVISION FOR THE PRE-PAYMENT OF THE FUNDED AMOUNT PRIOR TO THE  SETTLE-
 MENT  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  FUND-
 ING 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 CONSUM-
 ER'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  ACCOM-
 PANIED  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 CERTIF-
 ICATES 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.

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Senate Bill S4478

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Sponsored By

Anna M. Kaplan