Enacting the Kansas transparency in consumer legal funding act.

HOUSE BILL No. 2518
AN A CT enacting the Kansas transparency in consumer legal funding act; providing
requirements for consumer legal funding agreements; prohibiting consumer legal
funding companies from engaging in certain conduct; requiring certain consumer
disclosures related to consumer legal funding agreements; providing for penalties for
violation of the act.
Be it enacted by the Legislature of the State of Kansas:
Section 1. (a) The provisions of sections 1 through 4, and
amendments thereto, shall be known and may be cited as the
transparency in consumer legal funding act. The purpose of the act is to
promote consumer protections related to consumer legal funding
transactions.
(b) The provisions of this act are severable. If any portion of this
act is held by a court to be unconstitutional or invalid, or the
application of any portion of this act to any person or circumstance is
held by a court to be unconstitutional or invalid, the invalidity shall not
affect other portions of this act that can be given effect without the
invalid portion or application and the applicability of such other
portions of this act to any person or circumstance remains valid and
enforceable.
Sec. 2. As used in the transparency in consumer legal funding act:
(a) "Advertise" means publishing or disseminating any written,
oral, electronic or printed communication or any communication by
means of recorded telephone message or transmitted or broadcast on
radio, television, the internet or similar communication media,
including, but not limited to, audio recordings, film strips, motion
pictures and videos, published, disseminated, circulated or placed
before the public for the purpose of inducing a consumer to enter into a
consumer legal funding contract.
(b) "Charges" means the amount of money to be paid to the
consumer legal funding company by or on behalf of the consumer,
above the funded amount provided by or on behalf of the consumer
legal funding company to the consumer. "Charges" includes all
administrative, origination, underwriting and other fees, including
interest, regardless of how such charges are denominated.
(c) "Consumer" means a natural person who resides or is
domiciled in Kansas and is a plaintiff in a civil action in Kansas.
"Consumer" includes the estate of a decedent who was domiciled in
Kansas at the time of death if the civil action is a wrongful death claim.
(d) "Consumer legal funding" means a nonrecourse transaction in
which a consumer legal funding company purchases and a consumer
assigns to the company a contingent right to receive an amount of the
potential proceeds of any recovery, including a settlement or judgment,
in the consumer's legal claim, and the funds to the consumer are used
for household or personal expenses. "Consumer legal funding" does not
include expenses directly related to prosecuting the legal claim.
(e) "Consumer legal funding company" or "company" means a
person or entity that enters into or facilitates a consumer legal funding
contract with a consumer. "Consumer legal funding company" does not
include:
(1) An immediate family member of the consumer;
(2) a bank, lender, financing entity or other special purpose entity:
(A) That provides financing to a consumer legal funding
company; or
(B) to which a consumer legal funding company grants a security
interest in or transfers any rights or interest in a consumer legal funding
contract; or
(3) an attorney or accountant who provides services to the
consumer.
(f) "Funded amount" means the amount of money provided to or
on behalf of the consumer in a consumer legal funding contract
excluding charges.
(g) "Funding date" means the date on which the funded amount is
transferred to the consumer by the consumer legal funding company by,
including, but not limited to, personal delivery, wire, ACH or other
HOUSE BILL No. 2518—page 2
electronic means or mailed by insured, certified or registered United
States mail.
(h) "Immediate family member" means a parent, sibling, child,
stepchild, spouse, domestic partner, cohabitant, immediate in-law, aunt,
uncle, first cousin, grandparent or grandchild.
(i) "Legal claim" means a civil claim or cause of action.
(j) "Resolution date" means the date the funded amount, plus the
agreed upon charges, are delivered to the consumer legal funding
company by the consumer, the consumer's attorney or otherwise.
Sec. 3. (a) A consumer legal funding contract shall:
(1) Be written in a clear manner using words with common,
everyday meanings to enable a reasonable consumer to read and
understand the terms of the contract without having to obtain the
assistance of a professional;
(2) be completely filled in when presented to the consumer for
signature;
(3) contain a right of rescission, allowing the consumer to cancel
the contract without penalty or further obligation if, within 10 business
days after the funding date, the consumer returns to the consumer legal
funding company the full amount of the disbursed funds;
(4) contain the initials of the consumer on each page;
(5) contain a statement that there are no fees or charges to be paid
by the consumer other than what is disclosed on the disclosure form;
(6) if the consumer seeks more than one legal funding contract
from the same company, disclose the cumulative amount due from the
consumer for all transactions from the company, including, but not
limited to, charges under all contracts, if repayment is made any time
after the contracts are executed;
(7) contain a statement of the maximum amount the consumer
may be obligated to pay under the contract other than in a case of
material breach, fraud or misrepresentation by or on behalf of the
consumer;
(8) clearly and conspicuously detail how charges, including, but
not limited to, any applicable fees, are incurred or accrued;
(9) for consumers whose primary language is not English, on
written request from the consumer or the consumer's attorney, be
translated in writing into the consumer's native language in which the
oral negotiations are conducted between the consumer legal funding
company and the consumer; and
(10) state that if there is no recovery from the consumer's civil
action, the consumer shall owe nothing to the consumer legal funding
company unless the consumer violated any material term of the
contract or committed fraud against the consumer legal funding
company.
(b) A consumer legal funding contract shall contain the disclosures
described in this section and such disclosures are material terms of the
contract. Unless otherwise specified, such disclosures shall be typed in
at least 12-point font and be placed clearly and conspicuously within
the contract as follows:
(1) On the front page under appropriate headings, language
specifying:
(A) The funding amount to be paid to the consumer by the
consumer legal funding company;
(B) an itemization of one-time charges;
(C) the maximum total amount to be assigned by the consumer to
the company, including the funded amount and all charges; and
(D) a payment schedule including, but not limited to, the funded
amount and charges, all dates and the amount due at the end of each
six-month period from the funding date until the date the maximum
amount due to the company pursuant to the contract is paid.
(2) Within the body of the contract:
(A) In at least 12-point bold type font: "Consumer's right to
cancellation: You may cancel this contract without penalty or further
obligation within 10 business days after the funding date if you return
HOUSE BILL No. 2518—page 3
to the consumer legal funding company the full amount of the
disbursed funds."
(B) A statement that the consumer legal funding company shall
have no role in deciding whether, when or how much the legal claim is
settled for, but the consumer and consumer's attorney shall notify the
company of the outcome of the legal claim by settlement or
adjudication prior to the resolution date. The company may seek
updated information about the status of the legal claim, but the
company shall not interfere with the independent professional judgment
of the attorney handling the legal claim or any settlement thereof.
(C) In all capital letters and in at least 12-point bold type font
contained within a box: "THE FUNDED AMOUNT AND AGREED
UPON CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS
OF YOUR LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE
EXTENT THAT THERE ARE A V AILABLE PROCEEDS FROM
YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF
THE CONSUMER LEGAL FUNDING COMPANY) ANYTHING IF
THERE ARE NO PROCEEDS FROM YOUR LEGAL CLAIM,
UNLESS YOU HA VE VIOLATED ANY MATERIAL TERM OF
THIS CONTRACT OR YOU HA VE COMMITTED FRAUD
AGAINST (INSERT NAME OF CONSUMER LEGAL FUNDING
COMPANY)."
(3) Located immediately above the place on the contract where the
consumer's signature is required in 12-point bold type font: "Do not
sign this contract before you read it completely. Do not sign this
contract if it contains any blank spaces. You are entitled to a completely
filled-in copy of the contract before you sign this contract. You should
obtain the advice of an attorney. Depending on the circumstances, you
may want to consult a tax, public or private benefits planning or
financial professional. You acknowledge that your attorney in the legal
claim has provided no tax, public or private benefit planning, or
financial advice regarding this transaction. You further acknowledge
that your attorney has explained the terms and conditions of the
consumer legal funding contract."
(c) If requested, a copy of the executed contract shall promptly be
delivered by the consumer to the attorney for the consumer.
(d) A consumer legal funding contract shall contain a written
acknowledgment by the attorney retained by the consumer in the legal
claim that attests to the following:
(1) The attorney has reviewed the mandatory disclosures required
by this section with the consumer;
(2) the attorney is being paid on a contingency fee basis pursuant
to a written fee agreement;
(3) all proceeds of the legal claim will be disbursed by means of
either the trust account of the attorney or a settlement fund established
to receive the proceeds of the legal claim on behalf of the consumer;
(4) the attorney is obligated to disburse funds to the consumer
legal funding company from the legal claim and take any other steps to
ensure that the terms of the legal funding contract are fulfilled;
(5) the attorney has not received and will not receive a referral fee
or other consideration from the consumer legal funding company in
connection with the consumer legal funding; and
(6) the attorney in the legal claim has provided no tax, public or
private benefit planning or financial advice regarding the consumer
legal funding transaction.
(e) If the acknowledgment required by subsection (d) is not
provided by the attorney or firm retained by the consumer in the legal
claim, the consumer legal funding contract shall be null and void. A
consumer legal funding contract that complies with this section shall
remain valid and enforceable if the consumer terminates the
relationship with the initial attorney or retains a new attorney with
respect to the legal claim.
(f) No prepayment penalties or fees shall be charged or collected
on consumer legal funding. A prepayment penalty or fee on consumer
HOUSE BILL No. 2518—page 4
legal funding shall be unenforceable.
(g) A consumer legal funding transaction that complies with this
section is not a loan and is not subject to any provision of law
governing loans or investment contracts. To the extent that this section
conflicts with any other law, this section shall control for the purposes
of regulating consumer legal funding transactions.
(h) The contracted amount to be paid to the consumer legal
funding company shall be a predetermined amount based upon
intervals of time from the funding date through the resolution date and
shall not be determined as a percentage of the recovery from the legal
claim.
(i) Within 30 days after receipt of a written request, a consumer or
the consumer's attorney shall disclose to any requesting party to a legal
claim and each insurer that has a duty to defend if the consumer has
entered into a consumer legal funding contract. The consumer and the
consumer's attorney have a continuing obligation to disclose that the
consumer has entered into a consumer legal funding contract within 30
days after the consumer enters such contract.
(j) The contingent right to receive an amount of the potential
proceeds of a legal claim is assignable by a consumer to a consumer
legal funding company.
(k) Communications between a consumer's attorney and a
consumer legal funding company to allow the consumer legal funding
company to ascertain the status of a legal claim or a legal claim's
expected value are not discoverable by a person against whom the legal
claim is asserted or filed.
Sec. 4. (a) A consumer legal funding company shall not:
(1) Pay or offer to pay commissions, referral fees or other forms of
consideration to any attorney, law firm, medical provider, chiropractor
or physical therapist or any employees of such providers for referring a
consumer to the company;
(2) accept commissions, referral fees, rebates or other forms of
consideration from any attorney, law firm, medical provider,
chiropractor or physical therapist or any employees of such providers;
(3) advertise false or misleading information regarding its
products or services;
(4) knowingly provide funding to a consumer who has previously
assigned or sold a portion of the consumer's right to proceeds from the
legal claim without first making payment to or purchasing a prior
unsatisfied consumer legal funding company's entire funded amount
and contracted charges unless a lesser amount is otherwise agreed to in
writing by the consumer legal funding companies, except that multiple
companies may agree to contemporaneously provide funding to a
consumer if the consumer and the consumer's attorney consent to the
arrangement in writing;
(5) have any influence, receive any right to or make any decisions
with respect to the conduct of the underlying legal claim or any
settlement or resolution thereof, and the right to make such decisions
shall remain solely with the consumer and the consumer's attorney in
the legal claim;
(6) attempt to obtain a waiver of any remedy or right by the
consumer, including, but not limited to, the right to trial by jury;
(7) knowingly pay or offer to pay for court costs, filing fees or
attorney fees during or after the resolution of the legal claim using
funds from the consumer legal funding transaction;
(8) knowingly offer or collude to provide funding as an
inducement to a consumer who is presently represented by counsel to
terminate that relationship and engage an attorney or law firm to
represent the consumer in the legal claim, and any contract that
purports to do so is void and unenforceable; and
(9) collude with or knowingly assist an attorney or law firm that is
enticing or intends to entice a consumer to bring a claim that the
company knows or has reason to know is fabricated or otherwise
brought not in good faith, and any contract that purports to do so is
HOUSE BILL No. 2518—page 5
void and unenforceable.
(b) (1) Any attorney retained by a consumer or any immediate
family member of such attorney shall not have a financial interest in a
consumer legal funding company offering consumer legal funding to
that consumer or provide consumer legal funding, loans or advances for
personal needs, cash or nonmonetary equivalent to current or
prospective consumers or the consumer's immediate family members.
(2) Any attorney who has referred the consumer to the consumer's
retained attorney shall not have a financial interest in the consumer
legal funding company offering consumer legal funding to such
consumer.
(c) The attorney for a consumer may only disclose confidential or
privileged information to the consumer legal funding company with the
written consent of the consumer.
(d) Only the consumer shall be authorized to execute a consumer
legal funding agreement unless the consumer lacks the legal capacity to
execute a contract. The consumer's legal representative in the legal
claim shall not execute a consumer legal funding contract on behalf of
the consumer. A consumer legal funding contract executed by the
consumer legal representative on behalf of such consumer shall be void
and unenforceable.
(e) A consumer legal funding company shall not accept any funds
from a foreign government or foreign adversary as defined in 15 C.F.R.
§791.4, as in effect on July 1, 2026.
(f) All consumer legal funding companies shall register with the
secretary of state pursuant to K.S.A. 17-7901, et seq., and amendments
thereto.
(g) (1) The attorney general, upon a finding that a consumer legal
funding company has willfully violated the provisions of this act after
notice and opportunity for hearing in accordance with the Kansas
administrative procedure act, may assess upon such consumer legal
funding company a civil penalty of not to exceed $10,000 per violation.
(2) In addition to any civil penalty assessed pursuant to paragraph
(1), such consumer legal funding company shall not recover the funded
amount or any charges under such consumer legal funding contract.
(3) Any civil penalty recovered pursuant to this subsection shall
be remitted to the state treasurer in accordance with the provisions of
K.S.A. 75-4215, and amendments thereto. Upon receipt of each such
remittance, the state treasurer shall deposit the entire amount in the
state treasury to the credit of the state general fund.
(4) All civil penalties assessed pursuant to this subsection shall be
due and payable within 10 days after written notice of assessment is
served on the person. If a civil penalty is not paid within the applicable
time period, the attorney general may file a certified copy of the notice
of assessment with the clerk of the district court in the county where
the violation occurred. The notice of assessment shall be enforced in
the same manner as a judgment of the district court.
(5) Any action by the attorney general pursuant to this subsection
shall be subject to review in accordance with the Kansas judicial review
act.
HOUSE BILL No. 2518—page 6
Sec. 5. This act shall take effect and be in force from and after its
publication in the statute book.
I hereby certify that the above BILL originated in the HOUSE, and was
adopted by that body

HOUSE adopted
Conference Committee Report

Speaker of the House.

Chief Clerk of the House.
Passed the SENATE
as amended
SENATE adopted
Conference Committee Report

President of the Senate.

Secretary of the Senate.
APPROVED

Governor.