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Bill would regulate those loaning money to litigation plaintiffs

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Rep. Toby Overdorf

Rep. Toby Overdorf

A bill that would regulate the lending practices and cap interest rates for companies that loan money to plaintiffs in civil — particularly personal injury — cases has been introduced in the Florida House.

HB 41, the Litigation Financing Consumer Protection Act, was filed by Rep. Toby Overdorf, R-Stuart.

He said the bill is only directed at consumer loans made to parties and doesn’t affect how law firms might finance costs they advance to clients as part of a contingency fee or other arrangement.

Litigation financing has helped cash-strapped clients survive financially during ongoing litigation that compensates them for injuries or other acts that were outside their control and left them harmed, Overdorf said.

But he said he’s seen interest rates on such loans ranging from 5% annually to 30% monthly. (His bill sets a 10% annual cap.) He said he’s focused on the loans clients need, frequently in the $20,000 to $50,000 range, to pay their living expenses during litigation.

“On the consumer side, some of the consumers are being preyed on by basically loan sharks,” he said. “This is meant to be a consumer protection act, so we don’t have 30% monthly interest, we don’t have folks who are going further into debt all the while they’re just trying to pay their bills and get through a situation that is not of their own making.”

Overdorf said he’s also concerned that clients will reject a settlement they otherwise would have taken because it won’t be enough to pay off the loans, interest, and related fees.

The bill specifies, he said, that it applies only to consumer loans and in no way affects how law firms might seek financing for costs they advance to clients or other litigation expenses.

“We’re not trying to deal with how law firms do their business,” Overdorf said. “This is more a consumer protection act. This is about the consumer; this is not about the practices associated with the individual law firms.”

He said he expects to get a Senate sponsor for the bill and will be talking with House Judiciary Chair Rep. Erin Grall, R-Vero Beach, about getting the bill heard in House committees.

The bill was filed on August 23, and on September 17 it was assigned to the Civil Justice and Property Rights Subcommittee, the Insurance and Banking Subcommittee, and the Judiciary Committee.

HB 41 creates a new section of F.S. Ch. 501, “Litigation Financing Consumer Protection Act.” The bill requires that all persons or companies offering litigation loans are required to register with the state.

Litigation lenders must post a $250,000 surety bond issued by a surety company registered in Florida and made payable to the state in the event of damages.

Litigation financers must give their clients a written contract that includes a five-day right of rescission.

without cost as long as the recipient returns all funds, a written acknowledgement by the client whether he or she is represented by an attorney, and a requirement to notify a settlement fund or trust that receives litigation proceeds of “any outstanding financial obligations arising from the contract.”

Financers are prohibited from paying a “commission, referral fee, rebate, or other consideration” to an attorney, law firm, or health-care provider to get a client referral; accept such a fee, commission, rebate, or payment from an attorney, law firm, or health-care practitioner; advertise false or misleading information about its services; or refer a client to a specific attorney, law firm, or health-care practitioner except if the client lacks legal representation, the financers may refer him or her to a county or state bar lawyer referral service.

HB 41 also requires the financers to promptly provide copies of the litigation financing contract to the client and prohibits them from interfering in the underlying litigation, including waiving any remedy including compensatory, statutory, or punitive damages. The lender may not attempt to force an arbitration or waive the client’s right to a jury trial; offer any legal advice to the client on the contract or the underlying litigation; assign all or part of the financing contract to another party; or sign a contract where the client already has another litigation financing contract with another person or company without paying off the first contract unless the client consents in writing.

The financers would also be required to: make several disclosures including that the financers cannot interfere with the underling litigation; provide an itemized list of all fees and charges, the interest rate, amount due, and payment schedule for the client; and agree that the client will owe nothing if he or she recovers nothing from the underlying litigation. If a recovery is insufficient to repay the lender, then the financers must accept as full payment that reduced amount, less any sum awarded for future medical benefits.

Contracts must also have a disclosure that the client should consult an attorney before signing and may want to talk with a financial consultant.

Interest rates charged by litigation financers may not exceed 10% per year and lenders may not charge any other fees or costs exceeding $500 for a single contract, under the bill.

Unless a judge orders otherwise, a party entering into a litigation financing contract must immediately disclose the contract to other parties in the suit without waiting for discovery requests.

Violation of the law would be considered an unfair and deceptive trade practice.

If passed, HB 41 would become effective July 1, 2022.

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