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SB 985

Consumer Protection - Third-Party Litigation Financing

2025 Regular Session Introduced by Alonzo Washington

MD SB 985 imposes writing, disclosures, and fiduciary duties on third‑party litigation financing to protect consumers and regulate financing terms.

Hearing 3/06 at 1:00 p.m.
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Bill Summary · SB 985

Summary — SB 985: Consumer Protection — Third‑Party Litigation Financing

Status: Enacted (signed by Governor 5/24/2025); Effective 9/1/2025
Introduced: 1/29/2025 • Sponsor: Sen. A. Washington (primary listed: DECOITE)
Related/Companion: HB 342; SB 1597

Purpose

SB 985 (Maryland Transparency in Third‑Party Litigation Financing Act) creates a regulatory and disclosure framework for third‑party litigation financing (TPLF) transactions to promote consumer protection and transparency, and to address perceived unfair or opaque contract terms and practices.

Key provisions

  • Definitions

    • Establishes key terms including “litigation financier,” “litigation financing,” “litigation financing contract,” “consumer,” “legal representative,” and “portfolio of actions.”
    • Explicitly excludes contingency‑fee arrangements between a consumer and the consumer’s legal representative from the definition of a litigation financing contract.

  • Applicability / Exemptions

    • Act does not apply to: certain nonprofit financings (so long as no fees/interest or recovery rights are taken, except in‑house counsel), commerce/business actors who do not charge fees or take an interest in outcomes, or banking institutions that do not take recovery rights.

  • Contract form and mandatory disclosures

    • Litigation financing contracts must be in writing and include all intended terms; financiers may not amend executed contracts without full disclosure and prior written consent of each party.
    • Required disclosures must be “material terms,” conspicuously presented (typed in at least 14‑point bold font).
    • Mandatory items include (among others):
    • Financier name, street and mailing address on first page;
    • Statement that some or all financing may be taxable;
    • Description of consumer’s right of rescission;
    • Itemization of charges;
    • Total funded amount and total amount due (presented in 6‑month intervals over a 42‑month period, including all charges and fees);
    • Cumulative amount due where consumer has sought multiple financings;
    • Statement that if there is no recovery, the consumer owes nothing; and that consumer cannot owe more than recovery where recovery is insufficient to satisfy the financier’s assigned amount.

  • Disclosure in civil actions

    • Parties must, without awaiting discovery, provide other parties and any insurer with a duty to defend any litigation financing contract under which the financier has a contingent right to compensation.
    • Disclosure is a continuing obligation and applies whether or not the civil action has formally commenced.
    • Admissibility governed by Maryland Rules of Evidence; the statute’s disclosure requirement alone does not make a contract admissible.

  • Fiduciary duty and remedies

    • Imposes a fiduciary duty on litigation financiers in certain class actions (text indicates fiduciary duties in specified class action contexts).
    • A violation by a litigation financier renders the litigation financing contract void and unenforceable by the financier and any successor in interest.
    • Office of the Attorney General (OAG) is authorized to enforce the Act; statute also contemplates penalties and potential usury remedies where applicable.
    • Contains severability clause and a prospective‑only application (does not apply to contracts entered before the effective date).

Who is affected

  • Consumers (plaintiffs, claimants) who obtain third‑party litigation financing in Maryland.
  • Litigation financiers and investors providing TPLF.
  • Plaintiffs’ attorneys and law firms insofar as financing arrangements intersect with representation (contingency fee arrangements are excluded from the statute’s financing‑contract definition).
  • Insurers, opposing parties, and courts (due to disclosure obligations).

Fiscal and operational impact

  • Fiscal note: No material effect on State finances. OAG can likely enforce the Act with existing resources assuming a small number of complaints.
  • Small businesses (financiers and resellers of financing) may be meaningfully affected by new compliance requirements and disclosure obligations.

Procedural/timeline notes

  • Enacted: Passed both chambers (record votes and amendments noted) and signed 5/24/2025.
  • Effective date: 9/1/2025.
  • The law applies prospectively only to contracts entered on or after the effective date.

For full statutory language and exact disclosure formatting and content requirements, consult the enacted text in Article — Commercial Law, Subtitle 50 (Maryland Transparency in Third‑Party Litigation Financing Act).

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

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