The Transparency in Consumer Legal Funding Act; create.

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To: Judiciary A
MISSISSIPPI LEGISLATURE REGULAR SESSION 2026

By: Representative Carpenter

HOUSE BILL NO. 1556

AN ACT TO CREATE "THE TRANSPARENCY IN CONSUMER LEGAL FUNDING 1
ACT"; TO REGULATE CONSUMER LEGAL FUNDING, CONTRACTS AND TIMELINES; 2
TO REQUIRE ATTORNEYS TO MAKE CERTAIN DISCLOSURES; TO CREATE 3
PENALTIES FOR VIOLATION; TO REQUIRE CONSUMER LEGAL FUNDING 4
COMPANIES TO PAY CERTAIN REGISTRATION FEES; AND FOR RELATED 5
PURPOSES. 6
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI: 7
SECTION 1. This act shall be known and cited as the 8
"Transparency in Consumer Legal Funding Act". 9
SECTION 2. The purpose of this act is to promote consumer 10
protections related to consumer legal funding transactions. The 11
act establishes that such transactions must be subject to state 12
regulation and sets forth requirements regarding disclosure, 13
registration, funding company and attorney responsibilities and 14
limitations, violations, and other items. 15
SECTION 3. The following terms shall have the following 16
meanings: 17
(a) "Advertise" means publishing or disseminating any 18
written, oral, electronic or printed communication or any 19
communication by means of recorded telephone messages or 20
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transmitted or broadcast on radio, television, the Internet or 21
similar communications media, including audio recordings, film 22
strips, motion pictures and videos, published, disseminated, 23
circulated or placed before the public, directly or indirectly, 24
for the purpose of inducing a consumer to enter into a consumer 25
litigation funding contract. 26
(b) "Charges" means the amount of money to be paid to 27
the consumer legal funding company, by or on behalf of the 28
consumer, above the funded amount provided by or on behalf of the 29
consumer legal funding company to a consumer. Charges include all 30
administrative, origination, underwriting or other fees, including 31
interest, no matter how denominated. 32
(c) "Consumer legal funding" means a nonrecourse 33
transaction in which a consumer legal funding company purchases 34
and a consumer assigns to the company a contingent right to 35
receive an amount of the potential proceeds of any recovery, 36
including a settlement or judgment, in the consumer's legal claim. 37
(d) "Consumer legal funding company" or "company" means 38
a person or entity that enters into a consumer legal funding 39
contract with a consumer. This term shall not include: an 40
immediate family member of the consumer; a bank, lender, a 41
financing entity, or any other special purpose entity that 42
provides financing to a consumer legal funding company; or 43
to which a consumer legal funding company grants a security 44
interest or transfers any rights or interest in a consumer 45
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litigation funding contract; or an attorney or accountant who 46
provides services to a consumer. 47
(e) "Consumer" means a natural person or estate for a 48
decedent related to wrongful death with a legal claim. 49
(f) "Funded amount" means the amount of monies provided 50
to, or on behalf of, the consumer in the consumer legal funding 51
contract excluding charges. 52
(g) "Funding date" means the date on which the funded 53
amount is transferred to the consumer by the consumer legal 54
funding company including by personal delivery, wire, ACH or other 55
electronic means, or mailed by insured, certified or registered 56
United States mail. 57
(h) "Immediate family member" means a parent, sibling, 58
child by blood, adoption, or marriage, spouse, domestic partner, 59
cohabitant, stepchild, immediate in-law, aunt, uncle, first 60
cousin, grandparent, or grandchild. 61
(i) "Legal claim" means a civil claim or cause of 62
action. 63
(j) "Resolution date" means the date the funded amount, 64
plus the agreed upon charges, are delivered to the consumer legal 65
funding company by the consumer, the consumer's attorney or 66
otherwise. 67
SECTION 4. All consumer legal funding contracts shall meet 68
the following requirements: 69
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(a) The contract shall be written in a clear manner 70
using words with common, everyday meanings to enable a reasonable 71
consumer to read and understand the terms of the contract without 72
having to obtain the assistance of a professional; 73
(b) The contract shall be completely filled in when 74
presented to the consumer for signature; 75
(c) The contract shall contain, in twelve (12) point 76
bold type font, a right of rescission, allowing the consumer to 77
cancel the contract without penalty or further obligation if, 78
within ten (10) business days after the funding date, the consumer 79
returns to the consumer legal funding company the full amount of 80
the disbursed funds; 81
(d) The contract shall contain the initials of the 82
consumer on each page; the contract shall contain a statement that 83
there are no fees or charges to be paid by the consumer other than 84
what is disclosed on the disclosure form; 85
(e) In the event the consumer seeks more than one legal 86
funding contract from the same company, the contract shall 87
disclose the cumulative amount due from the consumer for all 88
transactions from the company, including charges under all 89
contracts, if repayment is made any time after the contracts are 90
executed; 91
(f) The contract shall contain a statement of the 92
maximum amount the consumer may be obligated to pay under the 93
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contract other than in a case of material breach, fraud or 94
misrepresentation by or on behalf of the consumer; and 95
(g) The contract shall clearly and conspicuously detail 96
how charges, including any applicable fees, are incurred or 97
accrued. 98
(h) For consumers whose primary language is not 99
English, upon the written request from the consumer or consumer's 100
attorney, the contract shall be translated in writing into the 101
consumer's native language in which the oral negotiations are 102
conducted between the consumer legal funding company and the 103
consumer. 104
(i) The contract shall state that if there is no 105
recovery from the consumer's civil action, the consumer shall owe 106
nothing to the consumer legal funding company unless the consumer 107
committed fraud against the consumer legal funding company. 108
(2) All consumer legal funding contracts shall contain the 109
disclosures specified in this subsection, which shall constitute 110
material terms of the contract. Unless otherwise specified, such 111
disclosures shall be typed in at least twelve (12) point font and 112
be placed clearly and conspicuously within the contract, as 113
follows: 114
(a) On the front page under appropriate headings, 115
language specifying: 116
(i) The funded amount to be paid to the consumer 117
by the consumer legal funding company; 118
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(ii) An itemization of one-time charges; 119
(iii) The maximum total amount to be assigned by 120
the consumer to the company, including the funded amount and all 121
charges; and 122
(iv) A payment schedule to include the funded 123
amount and charges, listing all dates and the amount due at the 124
end of each six (6) month period from the funding date, until the 125
date the maximum amount due to the company pursuant to the 126
contract is paid. 127
(b) Within the body of the contract it shall read: 128
"Consumer's right to cancellation: you may cancel this contract 129
without penalty or further obligation within ten (10) business 130
days after the funding date if you return to the consumer legal 131
funding company the full amount of the disbursed funds." 132
(c) The consumer legal funding company shall have no 133
role in deciding whether, when or how much the legal claim is 134
settled for, however, the consumer and consumer's attorney must 135
notify the company of the outcome of the legal claim by settlement 136
or adjudication prior to the resolution date. The company may 137
seek updated information about the status of the legal claim but 138
in no event shall the company interfere with the independent 139
professional judgement of the attorney handling the legal claim or 140
any settlement thereof. 141
(d) Within the body of the contract, in all capital 142
letters in at least twelve (12) point bold type font contained 143
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within a box: "THE FUNDED AMOUNT AND AGREED UPON CHARGES SHALL BE 144
PAID ONLY FROM THE PROCEEDS OF YOUR LEGAL CLAIM, AND SHALL BE PAID 145
ONLY TO THE EXTENT THAT THERE ARE AVAILABLE PROCEEDS FROM YOUR 146
LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF THE CONSUMER LEGAL 147
FUNDING COMPANY) ANYTHING IF THERE ARE NO PROCEEDS FROM YOUR LEGAL 148
CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL TERM OF THIS CONTRACT 149
OR YOU HAVE COMMITTED FRAUD AGAINST (INSERT NAME OF CONSUMER LEGAL 150
FUNDING COMPANY)." 151
(e) Located immediately above the place on the contract 152
where the consumer's signature is required, in twelve (12) point 153
bold type font: "Do not sign this contract before you read it 154
completely. Do not sign this contract if it contains any blank 155
spaces. You are entitled to a completely filled-in copy of the 156
contract before you sign this contract. You should obtain the 157
advice of any attorney. Depending on the circumstances, you may 158
want to consult a tax, public or private benefits planning, or 159
financial professional. You acknowledge that your attorney in the 160
legal claim has provided no tax, public or private benefit 161
planning, or financial advice regarding this transaction. You 162
further acknowledge that your attorney has explained the terms and 163
conditions of the consumer legal funding contract." 164
(f) If requested, a copy of the executed contract shall 165
promptly be delivered by the consumer to the attorney for the 166
consumer. 167
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(3) All consumer legal funding contracts shall contain a 168
written acknowledgement by the attorney retained by the consumer 169
in the legal claim that attests to the following: 170
(a) The attorney has reviewed the mandatory disclosures 171
in this section with the consumer; 172
(b) The attorney is being paid on a contingency basis 173
pursuant to a written fee agreement; 174
(c) All proceeds of the legal claim will be disbursed 175
via either the trust account of the attorney or a settlement fund 176
established to receive the proceeds of the legal claim on behalf 177
of the consumer; 178
(d) The attorney is obligated to disburse funds to the 179
consumer legal funding company from the legal claim and take any 180
other steps to ensure that the terms of the legal funding contract 181
are fulfilled; 182
(e) The attorney has not received and will not receive 183
a referral fee or other consideration from the consumer legal 184
funding company in connection with the consumer litigation 185
funding; and 186
(f) The attorney in the legal claim has provided no 187
tax, public or private benefit planning, or financial advice 188
regarding the consumer litigation funding transaction. 189
(4) In the event that the acknowledgement required pursuant 190
to subsection (3) of this section is not provided by the attorney 191
or firm retained by the consumer in the legal claim, the consumer 192
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litigation funding contract shall be null and void. The consumer 193
legal funding contract shall remain valid and enforceable in the 194
event the consumer terminates the initial attorney or retains a 195
new attorney with respect to the legal claim. 196
(5) Notwithstanding any other provision of law to the 197
contrary, no prepayment penalties or fees shall be charged or 198
collected on consumer litigation funding. A prepayment penalty on 199
consumer legal funding shall be unenforceable. 200
(6) A consumer legal funding transaction that complies with 201
this act is not a loan and is not subject to any provision of laws 202
governing loans or investment contracts. To the extent that this 203
act conflicts with any other law, this act supersedes that law for 204
purposes of regulating consumer legal funding transactions in this 205
State. 206
SECTION 5. (1) A consumer legal funding company shall be 207
prohibited from: 208
(a) Paying or offering to pay commissions, referral 209
fees, or other forms of consideration to any attorney, law firm, 210
medical provider, chiropractor or physical therapist or any of 211
their employees for referring a consumer to the company; 212
(b) Accepting commissions, referral fees, rebates or 213
other forms of consideration from an attorney, law firm, medical 214
provider, chiropractor or physical therapist or any of their 215
employees; 216
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(c) Advertising false or misleading information 217
regarding its products or services; 218
(d) Referring, in furtherance of an initial legal 219
funding, a customer or potential customer to a specific attorney, 220
law firm, medical provider, chiropractor or physical therapist or 221
any of their employees; provided, however, if a customer needs 222
legal representation, the company may refer the customer to a 223
local or state bar association referral service; 224
(e) Knowingly providing funding to a consumer who has 225
previously assigned or sold a portion of the consumer's right to 226
proceeds from his or her legal claim without first making payment 227
to or purchasing a prior unsatisfied consumer legal funding 228
company's entire funded amount and contracted charges, unless a 229
lesser amount is otherwise agreed to in writing by the consumer 230
legal funding companies, except that multiple companies may agree 231
to contemporaneously provide funding to a consumer provided that 232
the consumer and the consumer's attorney consent to the 233
arrangement in writing; 234
(f) Having any influence, receiving any right to, or 235
making, any decisions with respect to the conduct of the 236
underlying legal claim or any settlement or resolution thereof. 237
The right to make such decisions shall remain solely with the 238
consumer and the consumer's attorney in the legal claim; 239
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(g) Attempting to obtain a waiver of any remedy or 240
right by the consumer, including but not limited to the right to 241
trial by jury; 242
(h) Knowingly paying or offering to pay for court 243
costs, filing fees or attorney's fees either during or after the 244
resolution of the legal claim, using funds from the consumer legal 245
funding transaction; 246
(i) Knowingly offering or colluding to provide funding 247
as an inducement to a consumer who is presently represented by 248
counsel to terminate that engagement and engage such lawyer or law 249
firm to represent them in the same matter. Any consumer legal 250
funding contract entered into in violation of this paragraph shall 251
be void ab initio; and 252
(j) Colluding with or knowingly assisting a lawyer or 253
law firm that is enticing or intends to entice a consumer to bring 254
a claim that the company knows or has reason to know is fabricated 255
or otherwise not brought in good faith. Any consumer legal 256
funding contract entered into in violation of this paragraph shall 257
be void ab initio. 258
(2) An attorney, or the attorney's immediate family member, 259
retained by a consumer shall not have a financial interest in a 260
consumer legal funding company offering consumer legal funding to 261
that consumer; and shall not provide consumer legal funding, loans 262
or advances for personal needs, whether interest-free or 263
interest-accruing, or cash or nonmonetary equivalent, to current 264
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or prospective consumers, or the consumer's immediate family 265
members. 266
(3) (a) Any attorney who has referred the consumer to his 267
or her retained attorney, or immediate family member of a 268
consumer's retained attorney shall not have a financial interest 269
in the consumer legal funding company offering consumer legal 270
funding to that consumer. 271
(b) The attorney may only disclose confidential or 272
privileged information to the consumer legal funding company with 273
the written consent of the consumer. 274
(c) Only the consumer shall be authorized to execute a 275
consumer legal funding agreement on his or her own behalf, except 276
in such cases where the consumer lacks the legal capacity to 277
execute a contract. The consumer's legal representative in the 278
legal claim shall not execute a consumer legal funding contract on 279
behalf of the consumer. A consumer legal funding contract 280
executed by the consumer legal representative on behalf of such 281
consumer shall be void and unenforceable as a matter of law. 282
(d) The consumer legal funding company shall not accept 283
any funds from a foreign government or foreign nongovernment 284
person identified as a foreign adversary in 15 CFR 791.4, 285
including any agent or entity affiliated with such foreign 286
adversary. 287
SECTION 6. The contracted amount to be paid to the consumer 288
legal funding company shall be a predetermined amount based upon 289
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intervals of time from the funding date through the resolution 290
date and shall not be determined as a percentage of the recovery 291
from the legal claim. 292
SECTION 7. (1) Within thirty (30) days of receipt of a 293
written request, a consumer or the consumer's attorney shall 294
disclose to any requesting party to a legal claim and each insurer 295
that has a duty to defend whether the consumer has entered into a 296
consumer legal funding contract. 297
(2) If a consumer enters into a consumer legal funding 298
contract after responding to a request pursuant to subsection (1) 299
of this section, the consumer and the consumer's lawyer have a 300
continuing obligation to disclose and shall disclose this fact to 301
the requesting person within thirty (30) days after the consumer 302
enters into the contract. 303
(3) Consumer legal funding contracts and all participants or 304
parties to the consumer litigation funding contract are 305
permissible subjects of discovery in a legal claim. 306
(4) Consumer legal funding transactions disclosed under this 307
act and consumer legal funding contracts discovered pursuant to 308
this act are inadmissible at trial, except for purposes of 309
impeachment. 310
SECTION 8. (1) Any consumer legal funding company found in 311
willful violation of any provision of this act in a specific 312
funding case waives its right to recover both the funded amount 313
and any and all charges, as defined in this act, in that 314
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particular case; and shall be liable for a civil penalty of not 315
more than Twenty Thousand Dollars ($20,000.00) for each violation, 316
which shall accrue to the state and may be recovered in a civil 317
action brought by the State Attorney General. 318
(2) This act shall not be construed to restrict the exercise 319
of powers or the performance of the duties of the State Attorney 320
General. 321
SECTION 9. The contingent right to receive an amount of the 322
potential proceeds of a legal claim is assignable by a consumer to 323
a consumer legal funding company. Only attorney's liens related 324
to the legal claim which is the subject of the consumer legal 325
funding or Medicare or other statutory liens related to the legal 326
claim shall take priority over any lien of the consumer legal 327
funding company. 328
SECTION 10. Any communications between a consumer's attorney 329
and a consumer legal funding company to allow the consumer legal 330
funding company to ascertain that status of a legal claim or a 331
legal claim's expected value shall not be discoverable by a person 332
against whom the legal claim is asserted or filed. 333
SECTION 11. (1) A consumer legal funding company shall 334
register with the state pursuant to this act before engaging in 335
consumer legal funding in this state. 336
(2) An applicant's registration must be filed in the manner 337
prescribed by the Secretary of State and must contain all the 338
information required by the State Attorney General to make an 339
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evaluation of the character and fitness of the applicant company. 340
(3) The initial application must be accompanied by a fee of 341
Two Hundred Dollars ($200.00). The renewal application shall be 342
accompanied by a fee of One Hundred Dollars ($100.00). A 343
registration must be renewed every two (2) years and expires on 344
the thirty-first of December. 345
(4) A certificate of registration may not be issued unless 346
the State Attorney General, upon investigation, finds that the 347
character and fitness of the applicant company, and of the 348
officers and directors thereof, are such as to warrant belief that 349
the business will be operated honestly and fairly within the 350
purposes of this act. 351
SECTION 12. Every registrant shall, at the time of filing 352
such application, file with the Attorney General, if the Attorney 353
General so requires, a bond satisfactory to the Attorney General 354
in an amount not to exceed Ten Thousand Dollars ($10,000.00) In 355
lieu of the bond at the option of the registrant, the registrant 356
may post an irrevocable letter of credit. The terms of the bond 357
must run concurrently with the period of time during which the 358
registration will be in effect. The bond must provide that the 359
registrant will abide by the provisions of this act and to all 360
rules lawfully made by the administrator under this act and to any 361
such person or persons any amounts of money that may become due or 362
owing to the state or to such person or persons from the 363
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registrant under and by virtue of this act during the period for 364
which the bond is given. 365
SECTION 13. (1) Upon written request, the applicant shall 366
be entitled to a hearing on the question of the applicant's 367
qualifications for registration if: 368
(a) The Attorney General has notified the applicant in 369
writing that the application has been denied, or 370
(b) The Attorney General has not issued a registration 371
within sixty (60) days after the application for the registration 372
was filed. 373
(2) A request for a hearing may not be made more than 374
fifteen (15) days after the Attorney General has mailed a written 375
notice to the applicant that the application has been denied and 376
stating in substance the Attorney General findings supporting 377
denial of the application. 378
SECTION 14. (1) Notwithstanding the prior approval 379
requirement of this act, a consumer legal funding company that 380
registered with the State Attorney General between the effective 381
date of this act or when the Attorney General has made 382
applications available to the public, whichever is later, and one 383
hundred eighty (180) days thereafter may engage in consumer legal 384
funding while the company's registration is pending approval with 385
the Attorney General. All funding agreements entered into prior 386
to the effective date of this act are not subject to the terms of 387
this act. 388
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ST: The Transparency in Consumer Legal Funding
Act; create.
(2) No consumer legal funding company may use any form of 389
consumer legal funding contract in this state unless it has been 390
filed with the Attorney General in accordance with the filing 391
procedures set forth by the Secretary of State. 392
(3) The Secretary of State is hereby authorized to adopt 393
rules and regulations to implement the provisions of this section 394
as needed. 395
(4) A consumer legal funding company that registered with 396
the Secretary of State between the effective date of this chapter 397
or the date when the Secretary of State makes the applications 398
available to the public, whichever is later, and one hundred 399
eighty (180) days after the later of the two (2) dates may engage 400
in consumer legal funding agreements while the company's 401
registration is pending approval with the Secretary of State. 402
SECTION 15. If any provision of this act is declared 403
unconstitutional or invalid, in whole or in part, such portion 404
shall be deemed severable and shall not affect the validity of the 405
remaining portions of this act. 406
SECTION 16. This act shall take effect and be in force from 407
and after July 1, 2026. 408