Illinois General Assembly - Full Text of SB1396
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Full Text of SB1396  99th General Assembly




State of Illinois
2015 and 2016


Introduced 2/20/2015, by Sen. William R. Haine


New Act

    Creates the Civil Justice Funding Act. Establishes requirements for civil justice funding contracts, prohibitions on civil justice funding companies, disclosure requirements, limitations on fees, prohibitions on attorneys, and a requirement to register with the Department of Financial and Professional Regulation before engaging in civil justice funding. Effective July 1, 2015.

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1    AN ACT concerning regulation.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4    Section 1. Short title. This Act may be cited as the Civil
5Justice Funding Act.
6    Section 5. Definitions. As used in this Act:
7    "Advertise" means publishing or disseminating any written,
8electronic, or printed communication or any communication by
9means of recorded telephone messages or transmitted on radio,
10television, the Internet, or similar communications media,
11including film strips, motion pictures, and videos, published,
12disseminated, circulated, or placed before the public,
13directly or indirectly, for the purpose of inducing a consumer
14to enter into a civil justice funding.
15    "Charges" means the amount of money to be paid to the civil
16justice funding company by or on behalf of the consumer above
17the funded amount provided by or on behalf of the company to an
18Illinois consumer pursuant to this Act. Charges include all
19administrative, origination, underwriting, or other fees, no
20matter how denominated.
21    "Civil justice funding" means a non-recourse transaction
22in which a civil justice funding company purchases and a
23consumer assigns to the company a contingent right to receive



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1an amount of the potential proceeds of a settlement, judgment,
2award, or verdict obtained in the consumer's legal claim.
3    "Civil justice funding company" or "company" means a person
4or entity that enters into a civil justice funding with an
5Illinois consumer. "Civil justice funding company" or
6"company" does not include:
7        (1) an immediate family member of the consumer;
8        (2) a bank, lender, financing entity, or other special
9    purpose entity:
10            (A) that provides financing to a civil justice
11        funding company; or
12            (B) to which a civil justice funding company grants
13        a security interest or transfers any rights or interest
14        in a civil justice funding; and
15        (3) an attorney or accountant who provides services to
16    a consumer.
17    "Consumer" means a natural person who has a pending legal
18claim and who (1) resides or is domiciled in Illinois or (2)
19has a legal claim in Illinois.
20    "Funded amount" means the amount of moneys provided to or
21on behalf of the consumer in the civil justice funding.
22    "Funded amount" does not include charges.
23    "Funding date" means the date on which the funded amount is
24transferred to the consumer by the civil justice funding
25company either by personal delivery or via wire, ACH, or other
26electronic means or mailed by insured, certified, or registered



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1United States mail.
2    "Immediate family member" means a parent; sibling; child by
3blood, adoption, or marriage; spouse; grandparent or
5    "Legal claim" means a bona fide civil claim or cause of
7    "Resolution date" means the date the amount funded to the
8consumer, plus the agreed upon charges, are delivered to the
9civil justice funding company.
10    Section 10. Contract requirements; right of rescission.
11    (a) All civil justice fundings shall meet the following
13        (1) the contract shall be completely filled in when
14    presented to the consumer for signature;
15        (2) the contract shall contain, in bold and boxed type,
16    a right of rescission, allowing the consumer to cancel the
17    contract without penalty or further obligation if, within 5
18    business days after the funding date, the consumer either:
19            (A) returns to the civil justice funding company
20        the full amount of the disbursed funds by delivering
21        the company's uncashed check to the company's office in
22        person; or
23            (B) mails, by insured, certified, or registered
24        United States mail, to the address specified in the
25        contract, a notice of cancellation and includes in such



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1        mailing a return of the full amount of disbursed funds
2        in the form of the company's uncashed check or a
3        registered or certified check or money order; and
4        (3) the contract shall contain the initials of the
5    consumer on each page.
6    (b) The contract shall contain a written acknowledgment by
7the attorney retained by the consumer in the legal claim that
8attests to the following: (1) to the best of the attorney's
9knowledge, all the costs and charges relating to the civil
10justice funding have been disclosed to the consumer; (2) the
11attorney is being paid on a contingency basis pursuant to a
12written fee agreement; (3) all proceeds of the legal claim will
13be disbursed via either the trust account of the attorney or a
14settlement fund established to receive the proceeds of the
15legal claim on behalf of the consumer; (4) the attorney is
16following the written instructions of the consumer with regard
17to the civil justice funding; and (5) the attorney has not
18received a referral fee or other consideration from the civil
19justice funding company in connection with the civil justice
20funding, nor will the attorney receive such fee or other
21consideration in the future.
22    (c) If the acknowledgment required in subsection (b) of
23this Section is not be completed by the attorney retained the
24consumer in the legal claim, the contract shall be null and
25void. The contract remains valid and enforceable if the
26consumer terminates the initial attorney or retains a new



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1attorney with respect to the legal claim.
2    Section 15. Civil justice funding company prohibitions. A
3civil justice funding company shall not:
4        (1) pay or offer to pay commissions, referral fees, or
5    other forms of consideration to any attorney, law firm,
6    medical provider, chiropractor, physical therapist, or any
7    of their employees for referring a consumer to the company;
8        (2) accept any commissions, referral fees, rebates, or
9    other forms of consideration from an attorney, law firm,
10    medical provider, chiropractor, physical therapist, or any
11    of their employees;
12        (3) intentionally advertise materially false or
13    misleading information regarding its products or services;
14        (4) refer, in furtherance of an initial legal funding,
15    a customer or potential customer to a specific attorney,
16    law firm, medical provider, chiropractor, physical
17    therapist, or any of their employees; however, if a
18    customer needs legal representation, the company may refer
19    the customer to a local or state bar association referral
20    service;
21        (5) fail to promptly supply a copy of the executed
22    contract to the attorney for the consumer;
23        (6) knowingly provide funding to a consumer who has
24    previously assigned or sold a portion of the consumer's
25    right to proceeds from his or her legal claim without first



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1    making payment to or purchasing a prior unsatisfied civil
2    justice funding company's entire funded amount and
3    contracted charges, unless a lesser amount is otherwise
4    agreed to in writing by the civil justice funding
5    companies, except that multiple companies may agree to
6    contemporaneously provide funding to a consumer provided
7    that the consumer and the consumer's attorney consent to
8    the arrangement in writing;
9        (7) receive any right to or make any decisions with
10    respect to the conduct of the underlying legal claim or any
11    settlement or resolution thereof; the right to make such
12    decisions shall remain solely with the consumer and the
13    attorney in the legal claim; or
14        (8) knowingly pay or offer to pay for court costs,
15    filing fees, or attorneys' fees, either during or after the
16    resolution of the legal claim, using funds from the civil
17    justice funding transaction.
18    Section 20. Contracted amounts. A civil justice funding
19company shall require the contracted amount to be paid to the
20company to be set as a predetermined amount based upon
21intervals of time from the funding date through the resolution
22date, and not be determined as a percentage of the recovery
23from the legal claim.
24    Section 25. Fees.



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1    (a) If the consumer elects to make monthly payments to the
2civil justice funding company, the funding fee charged by the
3civil justice funding company shall not exceed 36% of the
4funded amount in a 12-month period, and the consumer shall make
5monthly payments to the civil justice funding company.
6    (b) If the consumer elects to not make monthly payments or
7defer payment to the civil justice legal funding company, the
8funding fee charged by the civil justice funding company shall
9not exceed 36% of the funded amount in a 12-month period, and
10in addition to this fee, the civil justice funding company may
11charge a deferral fee of up to 3% of the funded amount per
13    (c) In addition to the funding and deferral fees set forth
14in subsections (a) and (b), a civil justice funding company
15shall also collect a one-time fee of $500 in each civil justice
16funding to defray the ordinary costs of opening, administering,
17and terminating a civil justice funding, and the civil justice
18funding company may assess a fee for the expedited delivery of
19funds, provided that the civil justice funding company shall
20offer the consumer a free delivery option.
21    Section 30. Disclosures.
22    (a) All civil justice funding contracts shall contain the
23disclosures specified in this Section, which shall constitute
24material terms of the contract. Unless otherwise specified, the
25disclosures shall be typed in at least 12-point bold type font



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1and be placed clearly and conspicuously within the contract, as
3        (1) On the front page under appropriate headings,
4    language specifying:
5            (A) the funded amount to be paid to the consumer by
6        the civil justice funding company;
7            (B) an itemization of one-time charges;
8            (C) the total amount to be assigned by the consumer
9        to the company, including the funded amount and all
10        charges; and
11            (D) a payment schedule to include the funded amount
12        and charges, listing all dates and the amount due at
13        the end of each 180-day period from the funding date,
14        until the date the maximum amount due to the company by
15        the consumer to satisfy the amount due pursuant to the
16        contract.
17        (2) Pursuant to the provisions set forth in paragraph
18    (2) of subsection (a) of Section 10, within the body of the
19    contract: "Consumer's Right to Cancellation: You may
20    cancel this contract without penalty or further obligation
21    within 5 business days after the funding date if you
22    either:
23            (A) return to the civil justice funding company the
24        full amount of the disbursed funds by delivering the
25        company's uncashed check to the company's office in
26        person; or



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1            (B) mail, by insured, certified, or registered
2        United States mail, to the company at the address
3        specified in the contract, a notice of cancellation and
4        include in such mailing a return of the full amount of
5        disbursed funds in the form of the company's uncashed
6        check or a registered or certified check or money
7        order.".
8        (3) The civil justice funding company shall have no
9    role in deciding whether, when, and how much the legal
10    claim is settled for; however, the consumer and consumer's
11    attorney must notify the company of the outcome of the
12    legal claim by settlement or adjudication prior to the
13    resolution date. The company may seek updated information
14    about the status of the legal claim, but in no event shall
15    the company interfere with the independent professional
16    judgment of the attorney in the handling of the legal claim
17    or any settlement thereof.
18        (4) Within the body of the contract, in all capital
19    letters in at least 12-point bold type font contained



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3        (5) Located immediately above the place on the contract
4    where the consumer's signature is required, in 12-point
5    font: "Do not sign this contract before you read it
6    completely or if it contains any blank spaces. You are
7    entitled to a completely filled-in copy of the contract.
8    Before you sign this contract, you should obtain the advice
9    of an attorney. Depending on the circumstances, you may
10    want to consult a tax, public or private benefits planning,
11    or financial professional. You acknowledge that your
12    attorney in the legal claim has provided no tax, public or
13    private benefit planning, or financial advice regarding
14    this transaction.".
15    Section 35. Violations.
16    (a) Nothing in this Act shall be construed to restrict the
17exercise of powers or the performance of the duties of the
18Attorney General that he or she is authorized to exercise or
19perform by law.
20    (b) If a court of competent jurisdiction determines that a
21civil justice funding company has intentionally violated the
22provisions of this statute with regard to a specific civil
23justice funding, the civil justice funding company shall only
24be entitled to recover the funded amount provided to the
25consumer in such specific civil justice funding and shall not



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1be entitled to any additional charges.
2    Section 40. Assignability; liens.
3    (a) The contingent right to receive an amount of the
4potential proceeds of a legal claim is assignable by a
6    (b) Nothing contained in this Act shall be construed to
7cause any civil justice funding transaction conforming to this
8Act to be deemed a loan or to be subject to any of the
9provisions governing loans contained in this Act. A civil
10justice funding transaction that complies with this Act is not
11subject to any other statutory or regulatory provisions
12governing loans or investment contracts, except as provided by
13federal law. To the extent that this Act conflicts with any
14other law, this Act supersedes the other law for the purposes
15of regulating civil justice fundings in Illinois.
16    (c) Only attorney's liens related to the legal claim or
17Medicare or other statutory liens related to the legal claim
18shall take priority over any lien of the civil justice funding
19company. All other liens shall take priority by normal
20operation of law.
21    Section 45. Attorney prohibitions. An attorney or law firm
22retained by the consumer in the legal claim shall not have a
23financial interest in the civil justice funding company
24offering civil justice funding to that consumer. Additionally,



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1any attorney who has referred the consumer to his or her
2retained attorney shall not have a financial interest in the
3civil justice funding company offering civil justice funding to
4that consumer.
5    Section 50. Effect of communication on privileges. No
6communication between the consumer's attorney in the legal
7claim and the civil justice funding company as it pertains to
8the civil justice funding shall limit, waive, or abrogate the
9scope or nature of any statutory or common-law privilege,
10including the work-product doctrine and the attorney-client
12    Section 55. Registration; forms.
13    (a) Unless a civil justice funding company has first
14registered under this Act, the company may not engage in the
15business of civil justice funding in this State.
16    (b) An applicant's registration must be filed in the manner
17prescribed by the Department of Financial and Professional
18Regulation and must contain the information the Department
19requires to make an evaluation of the character and fitness of
20the applicant company. The initial application must be
21accompanied by a $250 fee. A renewal registration must include
22a $200 fee. A registration must be renewed every 2 years and
23expires on September 30th.
24    (c) A certificate of registration may not be issued unless



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1the Department of Financial and Professional Regulation, upon
2investigation, finds that the character and fitness of the
3applicant company, and of the officers and directors thereof,
4are such as to warrant belief that the business will be
5operated honestly and fairly within the purposes of this Act.
6    (d) Every registrant shall also, at the time of filing such
7application, file with the Department of Financial and
8Professional Regulation, if the Department so requires, a bond
9satisfactory to the Department of Financial and Professional
10Regulation in an amount not to exceed $50,000. In lieu of the
11bond at the option of the registrant, the registrant may post
12an irrevocable letter of credit. The terms of the bond must run
13concurrent with the period of time during which the
14registration will be in effect. The bond must provide that the
15registrant will faithfully conform to and abide by the
16provisions of this Act and to all rules lawfully made by the
17Department under this Act and to any such person or persons any
18and all amounts of money that may become due or owing to the
19State or to such person or persons from the registrant under
20and by virtue of this Act during the period for which the bond
21is given.
22    (e) Upon written request, the applicant is entitled to a
23hearing on the question of the applicant's qualifications for a
24registration if:
25        (1) the Department of Financial and Professional
26    Regulation has notified the applicant in writing that the



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1    application has been denied; or
2        (2) the Department of Financial and Professional
3    Regulation has not issued a registration within 60 days
4    after the application for the registration was filed.
5    A request for a hearing may not be made more than 30 days
6after the Department of Financial and Professional Regulation
7has mailed a written notice to the applicant that the
8application has been denied and stating in substance the
9Department's findings supporting denial of the application.
10    (f) Notwithstanding the prior approval requirement of
11subsection (a) of this Section, a civil justice funding company
12that registered with the Department of Financial and
13Professional Regulation between the effective date of this Act
14and December 31, 2016 may engage in civil justice funding while
15the company's registration is awaiting approval by the
16Department. All funding agreements prior to the effective date
17of this Act are not subject to the terms of this Act.
18    Section 60. Preexisting fundings. Nothing in this Act shall
19in any way affect or invalidate any civil justice fundings
20previously effectuated prior to the effective date of this Act.
21    Section 97. Severability. The provisions of this Act are
22severable under Section 1.31 of the Statute on Statutes.
23    Section 99. Effective date. This Act takes effect July 1,