Bill Summary for S 357 (2021-2022)

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Summary date: 

Mar 25 2021

Bill Information:

View NCGA Bill Details2021
Senate Bill 357 (Public) Filed Thursday, March 25, 2021
Intro. by Johnson, Craven, Alexander.

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Bill summary

Enacts Article 94, titled the "Helping Consumers in Crisis Act," to GS Chapter 58. Sets forth 13 defined terms. Authorizes consumer legal funding companies registered under the Article to enter into a consumer legal funding transaction for an amount not exceeding $500,000. Defines consumer legal funding transaction to mean a nonrecourse transaction in which a consumer assigns to a person the consumer's contingent right to receive an amount of potential net proceeds of a settlement of judgment obtained from the consumer's legal claim (defined to mean a bona fide civil claim or cause of action); excludes transactions between immediate family members. Provides that a consumer is not required to repay such a company if the consumer obtains no net proceeds from the consumer's legal claim. Provides that transactions that comply with the Article are not loans and therefore not subject to laws governing loans or investment contracts. Deems the Article to supersede conflicting law.

Requires registration with the Commissioner of Insurance (Commissioner) as a consumer legal funding company (company) before entering into a consumer legal funding transaction. Deems legal funding contracts entered into without prior company registration void. Sets a $1,000 registration and renewal fee, with renewal required every three years. Details registration application content and procedure, requiring application through the Nationwide Mortgage Licensing System and Registry (NMLS). Application requirements include a criminal history background check of applicants or individuals who control entity applicants, and proof of financial stability in the form of a $50,000 surety bond or irrevocable letter of credit. Provides for abandonment of an application after failure to respond to the Commissioner's written request for information within 30 days. 

Details requirements and limitations of legal funding contracts, including that the contract be written in plain language and completed when presented to the consumer for signature. Requires the contract to contain seven attestations by the attorney retained by the consumer for the legal claim, with failure to make the required attestations rendering the contract void. Provides for the contract to remain enforceable if the consumer terminates the consumer's attorney and proceeds pro se or retains a new attorney for the legal claim. Requires contracts to include consumer disclosures on the first two pages, as possible, and contain the 10 specified disclosures such as notification that some or all of the funded amount is taxable, an itemization of charges, and the total amount due from the consumer. Details further require terms of the contract, including defined terms, the consumer's right of rescission, acknowledgement of legal representation and advice, and other standard legal advisories. Requires prompt delivery of a copy of the executed contract to the consumer's attorney. 

Identifies 10 prohibited acts of companies, such as (1) paying consideration to attorneys, law firms, and health care providers or their employees for referrals to the company; (2) accepting commissions from attorneys, law firms, or health care providers or their employees; (3) providing legal advice to the consumer regarding the transaction or underlying legal claim; (4) reporting a consumer to a credit reporting agency; and (5) knowingly providing funding to a consumer for a claim in a pending class action lawsuit. Bars attorneys representing consumers in transactions from having a financial interest in the company or receiving a referral fee or other consideration from the company, its employees or affiliates. Provides for communications with a consumer legal funding company to have no affect on the consumer's statutory or common-law privileges. 

Authorizes the Commissioner to examine a company, at cost to the company unless the Commissioner waives the costs and expenses in the interests of justice. Requires registration through the NMLS. Authorizes the Commissioner to participate in the NMLS; establish rules for registration as specified; contract with NMLS or other entities regarding recordkeeping and processing transaction fees; and contract to license the use of the proprietary software of the Department of Insurance to supervisory agencies of other states. Allows the Commission to waive, modify, or add to the Article's requirements for NMLS participation.

Requires reporting enforcement actions to NMLS, with other reporting authorized. Provides for agreements or arrangements with other governmental agencies to share confidential information, with strict confidentiality maintained. Provides for these confidentiality statutes to supersede any conflicting public records law. Excludes from confidentiality employment history and publicly adjudicated disciplinary and enforcement actions against companies that are included in the NMLS for public access. 

Grants the Commissioner the Authority to adopt rules necessary to enforce the Article, with notice to companies either registered or pending registration under the Article before proposing a rule.

In addition to other enforcement powers vested in the Commissioner, grants the Commissioner disciplinary authority ranging from disciplinary action on the company's registration, assessing a civil penalty of $1,000 per violation or $10,000 for willful violations, and ordering the company to cease and desist from entering into additional transactions or making restitution to an injured consumer. Provide notice and hearing requirements. Deems noncompliance with the Article a fair and deceptive trade practice under GS Chapter 75.

Establishes annual reporting requirements for consumer legal funding companies to report its business and operations during the preceding calendar year to the Commissioner as specified. Authorizes the Commissioner to summarize and analyze relevant submitted data and publish the summary and analysis of the Department of Insurance and the Department of Justice's website.

Provides a severability clause.

Effective October 1, 2021.