Bill > S3512

Introduced Session

This bill regulates consumer legal funding providers. Consumer legal funding is a transaction in which a company purchases and a consumer sells to the company a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award, or verdict obtained in the consumer's legal claim for the consumers household needs. Under current law, consumer legal funding providers are largely unregulated in New Jersey. The bill requires consumer legal funding contracts to: be completely filled in when presented to the consumer for signature; contain, in bold and boxed type, a right of rescission, allowing the consumer to cancel the contract without penalty or further obligation within five business days after the funding date under certain circumstances; and contain the initials of the consumer on each page. The bill requires consumer legal funding contracts to contain a written acknowledgment by the attorney retained by the consumer in the legal claim that attests to the following: (1) to the best of the attorney's knowledge, all the costs and charges relating to the consumer legal funding have been disclosed to the consumer; (2) the attorney is being paid on a contingency basis pursuant to a written fee agreement; (3) all proceeds of the legal claim will be disbursed via either the trust account or a settlement fund; (4) the attorney is following the written instructions of the consumer with regard to the consumer legal funding; and (5) the attorney has not and will not receive a referral fee or other consideration from the consumer legal funding company. The bill provides that if the written acknowledgment by the attorney is not complete, the contract is void. If the acknowledgement is completed, the contract will remain valid if the consumer terminates the initial attorney or retains a new attorney with respect to the legal claim. Under the bill, a consumer legal funding company shall not: (1) pay or offer to pay commissions, referral fees, or other forms of consideration for referring a consumer to the company; (2) accept any commissions, referral fees, rebates, or other forms of consideration for the referral of consumers; (3) intentionally advertise materially false or misleading information; (4) refer, in furtherance of an initial legal funding, a customer or potential customer to a specific attorney, law firm, medical provider, chiropractor, or physical therapist or any of their employees; provided, however, if a customer needs legal representation, the company may refer the customer to a local or State bar association referral service; (5) fail to promptly supply a copy of the executed contract to the attorney for the consumer; (6) provide funding to a consumer who has previously assigned or sold a portion of the consumer's right to proceeds under certain circumstances; (7) receive any right to or make any decisions with respect to the conduct of the underlying legal claim or any settlement or resolution thereof; (8) knowingly pay or offer to pay for court costs, filing fees, or attorney's fees either during or after the resolution of the legal claim, using funds from the consumer legal funding transaction; (9) charge a fee in an amount greater than 40 percent of the funded amount in any 12-month period; or (10) charge any additional administrative, origination, underwriting or other fees, except for a one time document preparation fee, which shall be no greater than $500. The bill requires a consumer legal funding company to require the contracted amount to be paid to the company to be set as a predetermined amount based upon intervals of time from the funding date through the resolution date, and not to be determined as a percentage of the recovery from the legal claim. The bill requires all consumer legal funding contracts to contain certain disclosures. The bill requires the front page of the contract to contain language specifying the funded amount to be paid to the consumer by the consumer legal funding company; an itemization of one time charges; the total amount to be assigned by the consumer to the company, including the funded amount and all charges; and a payment schedule. The contract must also contain disclosures on: the consumer's right to cancellation; how the company will be notified of a settlement; and the consumer only being required to pay in the event that there are proceeds from the legal claim. The bill provides that nothing in it shall restrict the exercise of powers or the performance of the duties of the Attorney General, which the Attorney General is authorized to exercise or perform by law. Under the bill, if a court of competent jurisdiction determines that a consumer legal funding company has intentionally violated the provisions of the bill with regard to a specific consumer legal funding, the consumer legal funding company shall only be entitled to recover the funded amount provided to the consumer in that specific consumer legal funding and shall not be entitled to any additional charges. The bill provides that the contingent right to receive an amount of the potential proceeds of a legal claim shall be assignable by a consumer. Under the bill, an attorney or law firm retained by the consumer in the legal claim may not have a financial interest in the consumer legal funding company offering consumer legal funding to that consumer. Additionally, no communication between the consumer's attorney in the legal claim and the consumer legal funding company as it pertains to the consumer legal funding shall limit, waive, or abrogate the scope or nature of any statutory or common-law privilege, including the work-product doctrine and the attorney-client privilege. The bill provides that unless a consumer legal funding company has first registered with the Department of Banking and Insurance, the company shall not engage in the business of consumer legal funding, and provides for certain criteria for registration, such as the payment of fees, maintenance of a bond, and investigation of the character and fitness of the applicant.

Committee Categories

Joe Lagana (D)*, 

Introduced in the Senate, Referred to Senate Commerce Committee (on 01/26/2023)

Official Document