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

Summary

A Senate Commerce Committee statement to the Senate on Senate Bill No. 1475 with committee amendments, State of New Jersey, dated October 10, 2024, reporting the bill favorably. As amended, the bill regulates consumer legal funding providers, which buy from a consumer a contingent right to part of the potential proceeds of a legal claim; the statement says these providers are largely unregulated in New Jersey. Contracts must include a right of rescission and stated disclosures, and providers may not charge a fee greater than 40 percent of the funded amount in any 12-month period or pay court costs or attorney's fees from the funding. Companies must register with the Department of Banking and Insurance and may not report a consumer to a credit reporting agency when net proceeds fall short.

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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

(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 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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