SB3322 96TH GENERAL ASSEMBLY

LRB096 17078 MJR 32399 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB3322

Introduced 2/10/2010, by Sen. Don Harmon

SYNOPSIS AS INTRODUCED:

New Act
205 ILCS 670/21	from Ch. 17, par. 5427

Creates the Non-Recourse Civil Litigation Funding Act. Provides that all contracts for non-recourse civil litigation funding must meet specified criteria. Provides that the contract shall provide that the consumer may cancel the contract within 5 business days following the consumer's receipt funds, without penalty or further obligation. Specifies the notice requirements for contracts. Contains provisions concerning the dispute of contracts. Provides that each non-recourse civil litigation funding company shall adhere to specified best practices. Contains provisions concerning (1) the sale and assignment of proceeds of legal claims and (2) the requirements for non-recourse civil litigation funding companies by the Department of Financial and Professional Regulation. Provides that the Department shall maintain a list of all non-recourse civil litigation funding companies. Contains provisions concerning the power of the Department to issue cease and desist orders. Specifies penalties for violation of the Act. Contains provisions concerning judicial review and application of the Act. Amends the Consumer Installment Loan Act to exclude non-recourse civil litigation funding. Contains a severability clause. Effective immediately.

CORRECTIONAL BUDGET AND IMPACT NOTE ACT MAY APPLY

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Non-Recourse Civil Litigation Funding Act.

Section 5. Definitions. In this Act:

"Civil litigation funding company" means a person or entity that enters into a non-recourse civil litigation funding transaction with a consumer.

"Consumer" means a person residing or domiciled in Illinois or who elects to enter into a transaction under this Act, whether it be in-person, over the internet, by facsimile, or any other electronic means, and who has a pending legal claim and is represented by an attorney at the time he or she receives the non-recourse civil litigation funding.

"Department" means the Department of Financial and Professional Regulation.

"Legal claim" means a civil or statutory claim or action.

"Non-recourse civil litigation funding" means a transaction in which a civil litigation funding company purchases and a consumer assigns the contingent right to receive an amount of the potential proceeds of a settlement, judgment, award, or verdict obtained in the consumer's legal claim to the civil litigation funding company.

Section 10. Contract provisions. All contracts for non-recourse civil litigation funding shall comply with the following requirements:

(1) The contract shall contain on the front page, appropriately headed and in at least 12-point bold face type, the following disclosures:

(A) the total dollar amount of funds to be paid to the consumer;

(B) an itemization of one-time fees; and

(C) the total dollar amount being assigned by the consumer to the civil litigation funding company, set forth in 6-month intervals for 36 months.

(2) The contract shall provide that the consumer may cancel the contract within 5 business days following the consumer's receipt funds, without penalty or further obligation. The contract shall contain the following notice written in at least 12-point, bold face type:

"Consumer's right to cancellation: You may cancel this contract without penalty or further obligation within 5 business days after the date you receive funds from (insert name of civil litigation funding company).".

The contract also shall specify that in order for the cancellation to be effective, the consumer must either return to the civil litigation funding company the full amount of disbursed funds by delivering the civil litigation funding company's uncashed check to the civil litigation company's offices in person within 5 business days after the disbursement of the funds or mail a notice of cancellation and include in that mailing a return of the full amount of disbursed funds in the form of the civil litigation funding company's uncashed check, or a registered or certified check or money order, by insured, registered, or certified United States mail, postmarked within 5 business days after the receipt of those funds from the civil litigation funding company, at the address specified in the contract for cancellation.

(3) The contract shall contain all of the following statements in at least 12-point bold face type:

(A) (Insert name of civil litigation funding company) agrees that it shall have no right to and will not make any decisions with respect to the conduct of the underlying legal claim or any settlement or resolution thereof and that the right to make those decisions remains solely with you and your attorney in the legal claim.

(B) (Insert name of civil litigation funding company) agrees that it shall only accept an assignment of an amount of the potential proceeds, rather than an assignment of the consumer's legal claim. (Insert name of civil litigation funding company) agrees that it shall have no right to pursue the legal claim on behalf of or in lieu of the consumer.

(4) All contracts to the consumer must contain the following statement, in plain language in a box with 15-point, bold face type, in all capitalized letters, stating the following:

"THE CIVIL LITIGATION FUNDING COMPANY SHALL ONLY BE PAID FROM THE PROCEEDS OF THE LEGAL CLAIM. YOU WILL NOT OWE THE CIVIL LITIGATION FUNDING COMPANY ANYTHING IF THERE IS NO RECOVERY OF PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU VIOLATE THE TERMS OF THIS AGREEMENT. IF THERE ARE INSUFFICIENT PROCEEDS TO PAY THE CIVIL LITIGATION FUNDING COMPANY IN FULL, THE CIVIL LITIGATION FUNDING COMPANY SHALL ONLY BE PAID TO THE EXTENT THAT THERE ARE AVAILABLE PROCEEDS FROM THE LEGAL CLAIM, UNLESS YOU VIOLATE THE TERMS OF THIS AGREEMENT.".

(5) The contract shall contain the following statement in at least 12-point bold face type located immediately above the space where the consumer signature is required:

"Do not sign this Agreement before you read it completely or if it contains any blank spaces. You are entitled to a completely filled-in copy of this contract. Before you sign this Agreement you should obtain the advice of an attorney. Depending on the circumstances, you may want to consult a tax, public, or private benefit planning or financial professional. You acknowledge that your attorney in the legal claim has provided no tax, public, or private benefit planning regarding this transaction.".

(6) The contract shall contain an acknowledgement by the consumer that he or she has reviewed the contract in its entirety.

(7) The contract shall contain a written acknowledgment by the attorney representing the consumer in the legal claim that provides the following:

(A) The attorney representing the consumer in the legal claim is being paid on a contingency basis per a written fee agreement.

(B) All proceeds of the legal claim will be disbursed via the trust account of the attorney representing the consumer in the legal claim or via a settlement fund established by the defendant in the legal claim to receive and distribute the proceeds of the legal claim on behalf of the consumer.

(C) The attorney representing the consumer in the legal claim has reviewed the contract and will follow the written instructions of the consumer provided to the attorney at the time the funds are obtained by the consumer from the civil litigation funding company with regard to remitting payment to the civil litigation funding company upon resolution of the legal claim.

Section 15. Disputes. If a dispute arises between the consumer and the civil litigation funding company concerning the contract for non-recourse civil litigation funding, then the responsibilities of the attorney representing the consumer in the legal claim shall be consistent with the attorney's responsibilities under the Illinois Rules of Professional Responsibility.

Section 20. Best practices. Each civil litigation funding company shall adhere to the following best practices:

(1) The civil litigation funding company may not pay or offer to pay commissions or referral fees to any attorney or employee of a law firm or to any medical provider, chiropractor, or physical therapist or their employees for referring a consumer to the civil litigation funding company. The civil litigation funding company agrees not to accept any commissions, referral fees, or rebates from any attorney or employee of a law firm or any medical provider, chiropractor, or physical therapist or their employees, other than what is agreed to be paid to the civil litigation funding company out of the proceeds of the legal claim pursuant to the signed contract between the consumer and the civil litigation funding company.

(2) The civil litigation funding company may not advertise false or intentionally misleading information regarding its product or services.

(3) The civil litigation funding company may not knowingly provide funding to a consumer who has previously sold and assigned an amount of his potential proceeds from his legal claim to another civil litigation funding company without first buying out that civil litigation funding company's entire accrued balance unless otherwise agreed in writing by the civil litigation funding companies and the consumer.

(4) The civil litigation funding company may not offer single premium credit life, disability, or unemployment insurance that is to be financed through a civil litigation funding transaction.

(5) For Spanish speaking consumers, upon the written request of the consumer, the principal terms of the contract must be translated in writing into Spanish, the consumer must sign the translated document containing the principal terms and initial each page, and the translator or lawyer must sign an affirmation confirming that the principal terms have been presented to the consumer in Spanish and acknowledged by the consumer. Principal terms shall include all items that must be disclosed by this Section.

Section 25. Sale and assignment of proceeds of legal claims. The contingent right to receive an amount of the potential proceeds of a legal claim is assignable and that assignment is valid for the purposes of obtaining funding from a civil litigation funding company.

Section 30. Civil litigation funding companies; requirements.

(a) It is unlawful to enter into a non-recourse civil litigation funding transaction unless the civil litigation funding company (i) is licensed by the Department in accordance with the licensure requirements of the Consumer Installment Loan Act, (ii) has received special authorization in the form of an Other Business Authorization for non-recourse civil litigation funding certificate from the Department, and (iii) complies with all Sections of this Act.

(b) Nothing in this Act shall cause any non-recourse civil litigation funding transaction conforming to this Act to be deemed to be a "loan" or subject to the restrictions or provisions governing loans set forth in the Interest Act, the Consumer Installment Loan Act, or other provisions of Illinois law.

Section 35. List of civil litigation funding companies. The Department shall maintain a list of all persons operating in accordance with Section 30 of this Act that have notified the Department that they intend to be civil litigation funding companies. This list shall be posted on the Department's website and shall be made available by the Department to any person who requests the list.

Section 40. Reporting.

(a) The Department shall require a civil litigation funding company operating in accordance with Section 30 of this Act to annually submit data regarding the number of non-recourse civil litigation funding transactions and the amount of funding provided to Illinois consumers during the year. This data must be submitted to the Department no later than February 15 of each year the civil litigation funding company does business in this State for the previous year of activity.

(b) Every civil litigation funding company shall retain and use in its business, or at another location approved by the Director, such records as may be required by the Director to enable the Director to determine whether the civil litigation funding company is complying with the provisions of this Act and the rules adopted pursuant to this Act. Every civil litigation funding company shall preserve the records of any non-recourse civil litigation funding for at least 2 years after making the final entry for such transaction. Accounting systems maintained in whole or in part by mechanical or electronic data processing methods that provide information equivalent to that otherwise required and follow generally accepted accounting principles are acceptable for that purpose, if approved by the Director in writing.

Section 45. Cease and desist.

(a) The Department may issue a cease and desist order to any person doing business without the required license or to any licensee, who, in the opinion of the Department, is violating or is about to violate the best practices or licensure requirements of this Act.

(b) The Department shall serve notice of its action, designated as a cease and desist order made pursuant to this Section, including a statement of the reasons for the action, either personally or by certified mail, return receipt requested. Service by certified mail shall be deemed completed when the notice is deposited in the U.S. mail.

(c) Within 15 days of service of the cease and desist order, the licensee or other person may request, in writing, a hearing.

(d) The Department shall schedule a hearing within 30 days after the request for a hearing unless otherwise agreed to by the parties.

(e) If it is determined that the Department had the authority to issue the cease and desist order, it may issue such orders as may be reasonably necessary to correct, eliminate, or remedy such conduct, limited to the penalties listed in Section 30 of this Act.

(f) The powers vested in the Department by this Section are additional to any and all other powers and remedies vested in the Department by law, and nothing in this Section shall be construed as requiring that the Department shall employ the power conferred in this Section instead of or as a condition precedent to the exercise of any other power or remedy vested in the Department.

Section 50. Penalties.

(a) Any person who engages in business as a civil litigation funding company without the license required by this Act shall be guilty of a Class 4 felony.

(b) A license issued under this Act may be revoked if the licensee, or any directors, managers of a limited liability company, partners, or officer thereof is convicted of a felony.

(c) Any person engaging in non-recourse litigation funding without the required license and found in violation of this Act, may be subject to fines assessed by the Department, limited to a maximum of $50,000, after an administrative hearing on the case is heard. No fines can be imposed by the Department until the results of the administrative hearing are concluded.

(d) No provision of this Section imposing any liability shall apply to any act done or omitted in conformity with any rule or regulation or written interpretation thereof by the Department, notwithstanding that after such act or omission has occurred, the rule, regulation or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

Section 55. Judicial review. All final administrative decisions of the Department hereunder shall be subject to judicial review pursuant to the provisions of the Administrative Review Law, and all amendments and modifications thereof, and any rules adopted pursuant thereto.

Section 60. Application of the Act. During the first 90 days after the effective date of this Act, any person who has applied for a license under this Act, or filed written notice of intention to apply for such license with the Department, and who has not been denied, shall be subject to all provisions of this Act and may engage in non-recourse litigation funding as if he were a licensee under this Act. This Act shall not apply to any loan transaction entered into by a civil litigation funding company that conforms to the Consumer Installment Loan Act entered into prior or subsequent to such effective date of this Act.

Section 900. The Consumer Installment Loan Act is amended by changing Section 21 as follows:

(205 ILCS 670/21) (from Ch. 17, par. 5427)

Sec. 21. Application of Act. This Act does not apply to any person, partnership, association, limited liability company, or corporation doing business under and as permitted by any law of this State or of the United States relating to banks, savings and loan associations, savings banks, credit unions, or licensees under the Residential Mortgage License Act for residential mortgage loans made pursuant to that Act. This Act does not apply to business loans. This Act does not apply to payday loans. This Act does not apply to non-recourse civil litigation funding, except for its licensure requirements.

(Source: P.A. 94-13, eff. 12-6-05.)

Section 970. Severability. The provisions of this Act are severable under Section 1.31 of the Statute on Statutes.

Section 999. Effective date. This Act takes effect upon becoming law.