New Jersey Senate Bill 1475, titled the "Consumer Legal Funding Act," seeks to regulate the practice of consumer legal funding within the state. Consumer legal funding involves non-recourse transactions where companies provide funds to individuals with pending legal claims in exchange for a contingent right to a portion of any potential settlement or judgment.
Key Provisions of the Bill
Contractual Requirements: The Bill mandates that consumer legal funding contracts contain clear and conspicuous disclosures and sets forth what must be contained on the front page of such contracts, as well as within the body of same. Such required terms include, among others, detailing the funded amount, itemizations of all charges, the total amount to be sold by the consumer to the company, and the right to cancel. The Bill sets maximum contractual terms, including a capped interest rate of 40 percent of the funded amount per year and a maximum one-time "document preparation fee" of no more than $500. The contract must provide that the funded amount and charges are repayable from proceeds of the legal claim only, and that the consumer will not owe the company anything if there are no proceeds unless the consumer or the attorney has violated a material term of the contract. Such a contract must state that the funding shall not be used to pay for attorney's fees, court costs, or filing fees before or after resolution of a case. Additionally, the contract must include a written attestation from the consumer's attorney acknowledging the funding agreement.
Consumer Rights and Disclosures: The Bill provides that Consumers are granted the right to rescind the funding agreement within five business days if the consumer returns the full funding amount. The Senate Commerce Committee's proposed amendments Bill set forth that the contract shall be provided to the consumer fully filled out in the consumer's native language. The Bill also prohibits consumer legal funding companies from engaging in deceptive advertising and from charging fees in excess of the contractual maximum. The Bill further restricts legal funding companies from interfering with the consumer's legal claim or attorney-client privileges.
Attorney Involvement: The Bill requires the consumer's attorney to acknowledge the funding agreement with an attestation within the contract. The attorney must confirm that all costs and charges have been disclosed to the customer, confirm that the attorney is being paid a contingency fee and has not received a referral fee from the legal funding company, and confirm that all proceeds owed to the funding company will be disbursed through the attorney's trust account or a designated settlement fund. The Bill prohibits attorneys, law firms, and medical providers/chiropractors/physical therapists from paying to or accepting from a consumer legal funding company, any referral fees, commissions, or other forms of consideration between the consumer legal funding company and any attorney, law firm, or medical provider.
Discovery in Litigation: The Senate Commerce Committee's proposed amendments to the Bill seeks to include that legal funding contracts are "presumed to be discoverable in a civil action." The amendment would further require the consumer's attorney to disclose the existence of a legal funding contract with thirty (30) days of a discovery request. However, the presumption of discoverability can be rebutted by the consumer, and the amendment also states that disclosure of the contract is "presumed to be inadmissible as evidence or at trial."
Potential Impact
By establishing clear guidelines and disclosure requirements, the Bill aims to protect consumers from potentially predatory lending practices associated with legal funding. Enhanced transparency ensures that consumers are fully informed of the terms and costs associated with obtaining such funds. The attorney attestation provision aims to maintain transparency and proper allocation of funds.
As of October 10, 2024, Senate Bill 1475 has undergone a second reading with amendments by the Senate Commerce Committee and is awaiting further legislative action. Legal professionals and stakeholders in New Jersey should monitor the progression of this Bill, as its enactment could significantly influence both consumers seeking legal funding and the attorneys who represent them.
To view the full text of the Bill please visit: https://legiscan.com/NJ/text/S1475/id/3024611.