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Bill

S 1475

"Consumer Legal Funding Act."

2024-2025 Regular Session Introduced by Joe Lagana and 2 co-sponsors

Establishes a New Jersey regulatory framework for consumer legal funding, requiring disclosures, caps on fees, rescission rights, attorney-conflict rules, and DOBI registration.

Reported out of Senate Committee with Amendments, 2nd Reading
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Bill Summary · S 1475

Summary — S.1475: "Consumer Legal Funding Act"

Status (latest reported): Reported favorably with committee amendments by the Senate Commerce Committee (10/10/2024); placed on 2nd Reading. (Bill introduced in 2024–2025 session.)

Purpose
- Establish a regulatory framework for “consumer legal funding” transactions (also called litigation or pre-settlement funding) to protect New Jersey consumers who sell a contingent interest in potential settlement or judgment proceeds to third‑party companies.

Key definitions
- “Consumer legal funding”: a non‑recourse transaction in which a company purchases an unvested, contingent future interest in the potential net proceeds of a consumer’s civil claim. If no recovery occurs, the consumer owes nothing.
- “Funded amount”: cash advanced to the consumer (exclusive of charges/fees).
- “Charges”: all fees (administrative, origination, underwriting, etc.) above the funded amount.

Major provisions and requirements
- Contract form and disclosures
- Contracts must be fully completed when presented, include consumer initials on each page, and (if applicable) be in the consumer’s native language.
- Front page must state: funded amount, itemized one‑time charges, total amount assigned (funded amount + charges), and a payment schedule.
- Contracts must disclose the consumer’s right of rescission and how the company will be notified of a settlement. Consumer pays only if there are proceeds from the legal claim.
- Right of rescission: consumer may cancel without penalty within five business days of funding by returning the uncashed check or sending notice and returning funds by certified/registered mail.

  • Fee limits and prohibitions

    • Maximum fee cap: companies may not charge more than 40% of the funded amount in any 12‑month period.
    • Only one permitted additional fee: a one‑time document preparation fee not to exceed $500.
    • Companies must set the amount due to them as a predetermined dollar schedule based on intervals from funding to resolution — not as a percentage of the eventual recovery.
    • Companies may not knowingly pay or offer to pay court costs, filing fees, or attorney’s fees from funding proceeds during or after resolution; contracts must inform consumers of this prohibition.
    • Companies may not pay or accept referral fees or other compensation to/from attorneys, law firms, medical providers, chiropractors, or physical therapists for referrals.

  • Attorney and privilege rules

    • Attorneys retained by the consumer cannot have a financial interest in the funding company offering funding to that consumer.
    • Communications between the consumer’s attorney and the funding company do not waive or limit attorney‑client privilege or work‑product protections.
    • The bill prescribes limited discovery rules for funding‑related materials (committee amendments: existence of a funding contract is presumptively discoverable; an attorney has 30 calendar days to disclose the existence of a funding transaction upon written discovery).

  • Evidence rule

    • Committee amendments prohibit consumer legal funding transactions from being admitted as evidence or used at trial.

  • Consumer protections

    • If insufficient net proceeds remain to repay the company, the company may not report the consumer to a credit reporting agency.
    • Contracts are void if required attorney acknowledgements (as described by certain versions) are not completed; if completed, contract remains valid if consumer later changes counsel.

  • Registration and oversight

    • Companies must register with the Department of Banking and Insurance (DOBI) before engaging in business, pay fees, maintain a bond, and undergo character/fitness review.
    • Nothing in the bill limits the Attorney General’s existing powers.

Who is affected
- Consumers with pending civil claims seeking pre‑settlement funding.
- Consumer legal funding companies (required to register and comply).
- Attorneys and law firms representing consumers (limits on financial ties and disclosure/privilege rules).
- Courts and litigants (new discovery/evidence rules).

Potential impacts
- Increases transparency (clear disclosures, itemized costs, rescission right).
- Caps and fee‑disclosure requirements aim to limit excessive costs to consumers.
- Regulation and registration introduce state oversight of an essentially unregulated industry in New Jersey.
- Privilege protections and the rule barring admissibility of funding transactions attempt to balance discovery needs with confidentiality of litigation strategy.

Procedural notes / related measures
- Reported by Senate Commerce Committee with amendments on 10/10/2024 (1R reprint contains detailed statutory language).
- Companion/related bills noted in the record (including A.4623 and prior‑session S.1224/S.7751). Further committee referrals/hearings and final floor action will determine enactment.

Compiled from official sources — confirm details with the bill’s official record.

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