Senate Commerce Committee Statement to Senate, No. 1475 (State of New Jersey, October 10, 2024)

Summary

Senate Commerce Committee statement to Senate, No. 1475, with committee amendments, State of New Jersey, dated October 10, 2024. The committee reports favorably and with committee amendments Senate Bill No. 1475, which as amended regulates consumer legal funding providers. The statement says the bill sets requirements for consumer legal funding contracts, including a right of rescission for the consumer and a written acknowledgment by the attorney retained by the consumer in the legal claim, and that the contract is void if the attorney’s written acknowledgment is not complete. It says consumer legal funding companies are prohibited from knowingly paying or offering to pay for court costs, filing fees or attorney’s fees using funds from the transaction.

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     SENATE COMMERCE COMMITTEE

                    STATEMENT TO

                  SENATE, No. 1475
                   with committee amendments



 STATE OF NEW JERSEY
                   DATED: OCTOBER 10, 2024

    The Senate Commerce Committee reports favorably and with
committee amendments Senate Bill No. 1475.
    As amended, 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 delineates a series of requirements for consumer legal
funding contracts. This includes:
   (1) that it be completely filled in when presented to the
consumer for signature;
   (2) contain a right of rescission for the consumer;
   (3) if applicable, terms and conditions of the contract in the
native language of the consumer; and
   (4) that it have a written acknowledgment by the attorney
retained by the consumer in the legal claim that attests to, among
other items: that the attorney is being paid on a contingency basis
pursuant to a written fee agreement; that all proceeds of the legal
claim will be disbursed via either the trust account or a settlement
fund; and that 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, consumer legal funding companies are prohibited
from certain actions, including to:
   (1) 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. The
consumer legal funding contract is to include a provision informing the
consumer of this prohibition; and
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    (2) charge a fee in an amount greater than 40 percent of the
funded amount in any 12-month period. The consumer legal funding
contract is to include a provision informing the consumer of the
maximum dollar amount charged. In no event is the consumer legal
funding company to charge the consumer above the maximum dollar
amount specified under the contract.
   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 is to 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 establishes certain enforcement provisions, including a
stipulation that nothing in it is to 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. The
bill provides that the contingent right to receive an amount of the
potential proceeds of a legal claim is to be assignable by a
consumer. The bill also stipulates that no consumer legal funding
company is to report a consumer to a credit reporting agency if
insufficient funds remain from the net proceeds to repay the company.
   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 are to
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 also establishes parameters
within which materials related to the contract are discoverable and
that transactions by a consumer legal funding company are
presumed inadmissible as evidence or at trial.
   Lastly, the bill provides that unless a consumer legal funding
company has first registered with the Department of Banking and
Insurance, the company cannot engage in the business of consumer
legal funding, and provides for certain criteria for registration, such
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as the payment of fees, maintenance of a bond, and investigation of
the character and fitness of the applicant.
    This bill was prefiled for introduction in the 2024-2025 session
pending technical review. As reported, the bill includes the changes
required by technical review, which has been performed.

COMMITTEE AMENDMENTS:
    The committee amended the bill to:
    (1) require that the consumer legal funding contract be written in
the consumer’s native language, if applicable;
    (2) remove certain attorney acknowledgement provisions;
    (3) require that a consumer legal funding contract include a
provision informing the consumer that funding will not be used to pay
for court costs, filing fees, or attorney’s fees during or after the
resolution of the legal claim;
    (4) require that a consumer legal funding contract include a
provision informing the consumer of the maximum dollar amount
charged and prohibit the consumer legal funding company from
charging the consumer above the maximum dollar amount specified
under the contract;
    (5) prohibit consumer legal funding companies from reporting a
consumer to a credit reporting agency if insufficient funds remain from
the net proceeds to repay the company;
    (6) allow the existence of a consumer legal funding contract to be
presumed to be discoverable in a civil action and allow an attorney,
upon receipt of a written discovery request, 30 calendar days to
disclose to the requesting party that a consumer has entered into a
consumer legal funding transaction; and
    (7) prohibit consumer legal funding transactions from being
admitted as evidence or at trial.


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