"Consumer Legal Funding Act."

A1382

ASSEMBLY, No. 1382

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Assemblywoman ELLEN J. PARK

District 37 (Bergen)

Assemblyman WILLIAM B. SAMPSON, IV

District 31 (Hudson)

SYNOPSIS

���� "Consumer Legal Funding Act."

CURRENT VERSION OF TEXT

���� Introduced Pending Technical Review by Legislative
Counsel.

��

An Act

concerning consumer legal funding and
supplementing Title 56 of the Revised Statutes.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.��� This act shall be known
and may be cited as the �Consumer Legal Funding Act.�

���� 2.��� As used in this act:

���� �Advertise� means publishing
or disseminating any written, electronic or printed communication or any
communication by means of recorded telephone messages or transmitted on radio,
television, the Internet or similar communications media, including film strips,
motion pictures and videos, published, disseminated, circulated or placed
before the public, directly or indirectly, for the purpose of inducing a
consumer to enter into a consumer legal funding.

���� �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 company to a
consumer pursuant to this act.� Charges include all administrative,
origination, underwriting or other fees no matter how denominated.

���� �Commissioner� means the
Commissioner of Banking and Insurance.

���� �Consumer� means a natural
person who has a pending legal claim and who resides in New Jersey.

���� �Consumer legal funding� or
�funding� means a non-recourse transaction in which a consumer legal funding
company purchases and a consumer transfers to the company an unvested,
contingent future interest in the potential net proceeds of the settlement or judgment
obtained from the consumer�s legal claim; if no proceeds are obtained from the
consumer�s legal claim, the consumer is not required to repay the company the
consumer legal funding amount or charges.

���� �Consumer legal funding
company� or �company� means a person or entity that enters into a consumer
legal funding with a consumer.� This term shall not include: an immediate
family member of the consumer; an attorney or accountant who provides services
to a consumer; or a bank, lender, financing entity, or other special purpose
entity:

���� (1)�� that provides financing
to a consumer legal funding company; or

���� (2)�� to which a consumer
legal funding company grants a security interest or transfers any rights or
interest in a consumer legal funding.

���� �Funded amount� means the
amount of monies provided to, or on behalf of, the consumer in the consumer
legal funding.� �Funded amount� excludes charges.

���� �Funding date� means the date
on which the funded amount is transferred to the consumer by the consumer legal
funding company by personal delivery, wire, electronic means, or insured,
certified, or registered United States mail.

���� �Immediate family member�
means a parent; sibling; child by blood, adoption, or marriage; spouse;
grandparent; or grandchild.

���� �Legal claim� means a bona
fide civil claim or cause of action.

���� �Resolution date� means the
date the amount funded to the consumer, plus the agreed upon charges, are
delivered to the consumer legal funding company.

����� 3.�� a.�� A
consumer legal funding contract shall meet the following requirements:

����� (1)� the
contract shall be completely filled in when presented to the consumer for
signature;

����� (2)� the
contract shall contain, in bold and boxed type, a right of rescission, allowing
the consumer to cancel the contract without penalty or further obligation if,
within five business days after the funding date, the consumer either:

����� (a)� returns
to the consumer legal funding company the full amount of the disbursed funds by
delivering the company�s uncashed check to the company�s office in person; or

����� (b)� mails,
by insured, certified, or registered United States mail, to the address
specified in the contract, a notice of cancellation and includes in that
mailing a return of the full amount of disbursed funds in the form of the
company�s uncashed check or a registered or certified check or money order;

����� (3)� the
contract shall contain the initials of the consumer on each page; and

����� (4)� if
applicable, the terms and conditions of the contract shall be written in the
consumer�s native language.

����� b.�� The
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 is being paid on a contingency basis pursuant to a written fee
agreement;

�����
�
(2) all proceeds of the legal claim owed to the
company will be disbursed via 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;

�����
�
(3) the attorney is following the written
instructions of the consumer with regard to the consumer legal funding; and

�����
�
(4) the attorney has not received a referral fee or
other consideration from the consumer legal funding company in connection with
the consumer legal funding, nor will the attorney receive that fee or other
consideration in the future.

����� c.�� If
the acknowledgment required in subsection b. of this section is not completed
by the attorney retained by the consumer in the legal claim, the contract shall
be void.� If the acknowledgement is completed, the contract shall remain valid
if the consumer terminates the initial attorney or retains a new attorney with
respect to the legal claim.

����� 4.�� A
consumer legal funding company shall not:

����� a.�� 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 of their employees for referring a consumer to the company;

����� b.�� accept
any commissions, referral fees, rebates, or other forms of consideration from
an attorney, law firm, medical provider, chiropractor, or physical therapist or
any of their employees;

����� c.�� intentionally
advertise materially false or misleading information regarding its products or
services;

����� d.�� refer,
in furtherance of an initial legal funding, a customer or potential customer to
a specific attorney, law firm, medical provider, chiropractor, or physical
therapist or any of their employees; provided, however, if a customer needs
legal representation, the company may refer the customer to a local or State
bar association referral service;

����� e.�� fail
to promptly supply a copy of the executed contract to the attorney for the
consumer upon request;

����� f.��� knowingly
provide funding to a consumer who has previously assigned or sold a portion of
the consumer�s right to proceeds from his or her 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 provided that the consumer and the consumer�s attorney consent to
the arrangement in writing;

����� g.�� receive
any right to or make any decisions with respect to the conduct of the
underlying legal claim or any settlement or resolution thereof.� The right to
make those decisions shall remain solely with the consumer and the attorney in
the legal claim;

����� h.�� knowingly
pay or offer to pay for court costs, filing fees or attorney�s fees either
during or after the resolution of the legal claim, using funds from the
consumer legal funding transaction. The consumer legal funding contract shall
include a provision informing the consumer that funding shall not be used to
pay for court costs, filing fees, or attorney�s fees during or after the
resolution of the legal claim;

����� i.��� charge
a fee in an amount greater than 40

percent
of the funded amount in any 12-month period.� The consumer legal funding
contract shall include a provision informing the consumer of the maximum dollar
amount charged.� In no event shall the consumer legal funding company charge
the consumer above the maximum dollar amount specified under the contract; or

���� j.���� charge
any additional administrative, origination, underwriting or other fees, except
for a one time document preparation fee, which shall be no greater than $500
per funding.

���� 5.��� A consumer legal funding
company shall require the contracted amount to be paid to the company to be set
as a predetermined amount based upon intervals of time from the funding date
through the resolution date, and shall ensure that the resolution amount shall
not be determined as a percentage of the recovery from the legal claim.

���� 6.��� A consumer legal funding
contract shall contain the disclosures specified in this section, which shall
constitute material terms of the contract.� Unless otherwise specified, the
disclosures shall be typed in at least 12-point bold-type font and be placed
clearly and conspicuously within the contract, as follows:

���� a.���� on the front page under
appropriate headings, language specifying:

���� (1)�� the funded amount to be
paid to the consumer by the consumer legal funding company;

���� (2)�� an itemization of one
time charges;

���� (3)�� the total amount to be
sold by the consumer to the company, including the funded amount and all
charges; and

���� (4)�� a payment schedule to
include the funded amount and charges, listing 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 by the consumer to satisfy the amount due pursuant
to the contract;

���� b.��� pursuant to the
provisions set forth in paragraph 2 of subsection a. of section 3 of this act,
within the body of the contract:

�Consumer�s Right to Cancellation:
You may cancel this contract without penalty or further obligation within five
business days after the funding date if you either:

���� (1)�� return to the consumer
legal funding company the full amount of the disbursed funds by delivering the
company�s uncashed check to the company�s office in person; or

���� (2)�� mail, by insured,
certified, or registered United States mail, to the company at the address
specified in the contract, a notice of cancellation and include in the mailing
a return of the full amount of disbursed funds in the form of the company�s
uncashed check or a registered or certified check or money order;�

���� c.���� within the body of the
contract, a notification providing that the consumer legal funding company
shall have no role in deciding whether, when and how much the legal claim is
settled for; however, 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 in no event shall the company interfere with the
independent professional judgment of the attorney in the handling of the legal
claim or any settlement thereof;

���� d.��� within the body of the
contract, in all capital letters 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 AVAILABLE 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 OR YOUR ATTORNEY HAVE VIOLATED ANY MATERIAL
TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST THE CONSUMER LEGAL
FUNDING COMPANY;�

���� e.���� located immediately
above the place on the contract where the consumer�s signature is required, in
12-point font:

�Do not sign this contract before
you read it completely or 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.�

���� 7.��� a.�� Nothing in this act
shall restrict the exercise of powers or the performance of the duties of the
Attorney General, which the Attorney General is authorized to exercise or
perform by law.

���� b.��� If a court of competent
jurisdiction determines that a consumer legal funding company has intentionally
violated the provisions of this act with regard to a specific consumer legal
funding, the consumer legal funding company shall only be entitled to recover
the funded amount provided to the consumer in that specific consumer legal
funding and shall not be entitled to any additional charges.

����� 8.�� a.�� The
contingent right to receive an amount of the potential proceeds of a legal
claim shall be assignable by a consumer.

����� b.�� Nothing
contained in this act shall be construed to cause any consumer legal funding
transaction conforming to this act to be deemed a loan or to be subject to any
of the provisions governing loans contained in any New Jersey statute or
regulation.� A consumer legal funding transaction that complies with this act
shall not be subject to any other statutory or regulatory provisions governing
loans or investment contracts.� To the extent that this act conflicts with any
other law, this act supersedes the other law for the purposes of regulating
consumer legal funding in New Jersey.

����� c.�� Only
attorney�s liens related to the legal claim or Medicare or other statutory
liens related to the legal claim shall take priority over any lien of the
consumer legal funding company. All other liens shall take priority by normal
operation of law.

���� d.��� No
consumer legal funding company shall report a consumer to a credit reporting
agency if insufficient funds remain from the net proceeds to repay the company.

���� 9.��� An attorney or law firm
retained by the consumer in the legal claim shall not have a financial interest
in the consumer legal funding company offering consumer legal funding to that
consumer.� Additionally, any attorney who has referred the consumer to his
retained attorney shall not have a financial interest in the consumer legal
funding company offering consumer legal funding to that consumer.

���� 10.��� a.� No communication
between the consumer�s attorney in the legal claim and the consumer legal
funding company as it pertains to the consumer legal funding shall limit,
waive, or abrogate the scope or nature of any statutory or common-law
privilege, including the work-product doctrine and the attorney-client
privilege.�

���� b.����� (1) The existence of a
consumer legal funding contract is presumed to be discoverable in a civil
action, notwithstanding any agreement or provision with respect to
confidentiality.� A consumer may seek to rebut this presumption.

���� (2)��� Upon receipt of a
written discovery request, a consumer�s attorney shall disclose to the
requesting party, within 30 calendar days of receipt of the written request,
that a consumer has entered into a consumer legal funding transaction and
include the name of the consumer legal funding company.

���� (3)��� Consumer legal funding
transactions disclosed pursuant to this act are presumed to be inadmissible as
evidence or at trial.

���� 11.��� a.�� Unless a consumer
legal funding company has first registered with the Department of Banking and
Insurance pursuant to this act, the company shall not engage in the business of
consumer legal funding in this State.

���� b.��� An applicant�s
registration shall be filed in the manner prescribed by the commissioner and
shall contain the information the commissioner requires to make an evaluation
of the character and fitness of the applicant company.� The initial application
shall be accompanied by a $500 fee.� A renewal registration shall include a
$200 fee.� A registration shall be renewed every two years and expire on
September 30th.

���� c.���� A certificate of
registration shall not be issued unless the commissioner, upon investigation,
finds that the character and fitness of the applicant company, and of the
officers and directors thereof, warrant belief that the business will be
operated honestly and fairly within the purposes of this act.

���� d.��� Every applicant shall,
at the time of filing an application, file with the commissioner, if the
commissioner so requires, a bond satisfactory to the commissioner in an amount
not to exceed $50,000.� In lieu of the bond, at the option of the applicant, the
applicant may post an irrevocable letter of credit.� The terms of the bond
shall run concurrent with the period of time during which the registration will
be in effect.� The bond shall provide that the applicant will faithfully
conform to and abide by the provisions of this act and to all rules lawfully
made by the administrator under this act and to any person or persons any and
all amounts of money that may become due or owing to the State or to any person
or persons from the applicant under and by virtue of this act during the period
for which the bond is given.

���� e.���� Upon written request,
the applicant is entitled to a hearing on the question of the applicant�s
qualifications for a registration if:

���� (1)�� The commissioner has
notified the applicant in writing that the application has been denied; or

���� (2)�� The commissioner has not
issued a registration within 60 days after the application for the registration
was filed.�

���� A request for a hearing shall
not be made more than 15 days after the commissioner has mailed a written
notice to the applicant that the application has been denied and stating in
substance the commissioner�s findings supporting denial of the application.

���� f.���� Notwithstanding the
prior approval requirement of subsection a. of this section, a consumer legal
funding company that registered with the commissioner between the effective
date of this act and six months thereafter may engage in consumer legal funding
while the company�s registration is waiting approval by commissioner.� All
funding agreements prior to the effective date of this act shall not be subject
to the terms of this act.

���� g.��� A consumer legal funding
company shall not use any form of consumer legal funding contract in this State
unless it has been filed with the commissioner in accordance with the filing
procedures set forth by the commissioner, except for a consumer legal funding
company operating pursuant to subsection f. of this section.

���� h.��� A consumer legal funding
company that has operated in this State within the 12 months prior to the
effective date of this act shall be allowed to operate in the State, provided
they have applied for a registration under subsection a. of this section and are
complying with all requirements of this act while the application for the
company is pending.

���� 12.� This act shall take
effect on the 90th day next following enactment. Nothing in this act shall in
any way affect or invalidate any consumer legal funding effectuated prior to
the effective date of this act.

STATEMENT

����� This bill regulates consumer legal funding
providers.� Consumer legal funding is a transaction in which a company
purchases and a consumer sells to the company a contingent right to receive an
amount of the potential proceeds of a settlement, judgment, award, or verdict
obtained in the consumer�s legal claim for the consumers household needs.�
Under current law, consumer legal funding providers are largely unregulated in
New Jersey.

����� The bill requires consumer legal funding contracts
to: be completely filled in when presented to the consumer for signature;
contain, in bold and boxed type, a right of rescission, allowing the consumer
to cancel the contract without penalty or further obligation within five
business days after the funding date under certain circumstances; contain the
initials of the consumer on each page; and if applicable, require that the
consumer legal funding contract be written in the consumer�s native language.

����� The bill requires consumer legal funding contracts to
contain a written acknowledgment by the attorney retained by the consumer in
the legal claim that attests to the following:

����� (1)� all proceeds of the legal claim will be
disbursed via either the trust account or a settlement fund;

����� (2)� the attorney is following the written
instructions of the consumer with regard to the consumer legal funding; and

����� (3)� the attorney has not and will not receive a
referral fee or other consideration from the consumer legal funding company.

����� The bill provides that if the written acknowledgment
by the attorney is not complete, the contract is void.� If the acknowledgement
is completed, the contract will remain valid if the consumer terminates the
initial attorney or retains a new attorney with respect to the legal claim.

����� Under the bill, a consumer legal funding company
shall not:

����� (1)� pay or offer to pay commissions, referral fees,
or other forms of consideration for referring a consumer to the company;

����� (2)� accept any commissions, referral fees, rebates,
or other forms of consideration for the referral of consumers;

����� (3)� intentionally advertise materially false or
misleading information;

����� (4)� refer, in furtherance of an initial legal
funding, a customer or potential customer to a specific attorney, law firm,
medical provider, chiropractor, or physical therapist or any of their
employees; provided, however, if a customer needs legal representation, the
company may refer the customer to a local or State bar association referral
service;

����� (5)� fail to promptly supply a copy of the executed
contract to the attorney for the consumer;

����� (6)� provide funding to a consumer who has previously
assigned or sold a portion of the consumer�s right to proceeds under certain
circumstances;

����� (7)� receive any right to or make any decisions with
respect to the conduct of the underlying legal claim or any settlement or
resolution thereof;

����� (8)� knowingly pay or offer to pay for court costs,
filing fees, or attorney�s fees either during or after the resolution of the
legal claim, using funds from the consumer legal funding transaction.� The
consumer legal funding contract is required to include a provision informing
the consumer that funding is not to be used to pay for court costs, filing
fees, or attorney�s fees during or after the resolution of the legal claim;

����� (9)� charge a fee in an amount greater than 40
percent of the funded amount in any 12-month period. The consumer legal funding
contract is required to include a provision informing the consumer of the
maximum dollar amount charged.� In no event is the consumer legal funding
company to charge the consumer above the maximum dollar amount specified under
the contract; or

����� (10) charge any additional administrative,
origination, underwriting or other fees, except for a one time document
preparation fee, which shall be no greater than $500.

����� The bill requires a consumer legal funding company to
require the contracted amount to be paid to the company to be set as a
predetermined amount based upon intervals of time from the funding date through
the resolution date, and not to be determined as a percentage of the recovery
from the legal claim.�

����� The bill requires all consumer legal funding
contracts to contain certain disclosures.� The bill requires the front page of
the contract to contain language specifying the funded amount to be paid to the
consumer by the consumer legal funding company; an itemization of one time
charges; the total amount to be assigned by the consumer to the company,
including the funded amount and all charges; and a payment schedule.� The
contract must also contain disclosures on: the consumer�s right to
cancellation; how the company will be notified of a settlement; and the
consumer only being required to pay in the event that there are proceeds from
the legal claim.

����� The bill provides that nothing in it shall restrict
the exercise of powers or the performance of the duties of the Attorney
General, which the Attorney General is authorized to exercise or perform by
law.� Under the bill, if a court of competent jurisdiction determines that a
consumer legal funding company has intentionally violated the provisions of the
bill with regard to a specific consumer legal funding, the consumer legal
funding company shall only be entitled to recover the funded amount provided to
the consumer in that specific consumer legal funding and shall not be entitled
to any additional charges.

����� The bill provides that the contingent right to
receive an amount of the potential proceeds of a legal claim shall be
assignable by a consumer.

����� Under the bill, an attorney or law firm retained by
the consumer in the legal claim may not have a financial interest in the
consumer legal funding company offering consumer legal funding to that
consumer.� Additionally, no communication between the consumer�s attorney in
the legal claim and the consumer legal funding company as it pertains to the
consumer legal funding shall limit, waive, or abrogate the scope or nature of
any statutory or common-law privilege, including the work-product doctrine and
the attorney-client privilege.� The bill provides the existence of a consumer
legal funding contract to be presumed to be discoverable in a civil action and
allows an attorney, upon receipt of a written discovery request, 30 calendar
days to disclose to the requesting party that a consumer has entered into a
consumer legal funding transaction.

����� The bill provides that unless a consumer legal
funding company has first registered with the Department of Banking and
Insurance, the company shall not engage in the business of consumer legal
funding, and provides for certain criteria for registration, such as the
payment of fees, maintenance of a bond, and investigation of the character and
fitness of the applicant.