This week, a new amendment to the West Virginia Consumer Credit and Protection Act takes effect. The Act is one of the primary statutes that governs consumer loans, leases, credit sales, and other transactions in West Virginia. This new amendment creates an added article in the Act. Designated Article 6N, this new law regulates and imposes restrictions on “litigation financiers.”
The amendment defines a litigation financier as any person, entity, or partnership engaged in “litigation financing,” which in turn is defined as
a nonrecourse transaction in which financing is provided to a consumer in return for a consumer’s assigning to the litigation financier a contingent right to receive an amount of the potential proceeds of the consumer’s judgment, award, settlement, or verdict obtained with respect to the consumer’s legal claim.
The amendment excludes certain transactions from this definition, such as legal costs advanced by the consumer’s attorney and consumer loans governed by other parts of the Act.
The amendment regulates both litigation financiers and litigation financing transactions. With regard to the financiers, the amendment imposes many requirements, such as the following:
- Financiers are required to become registered and to post a bond;
- They are prohibited from paying to or receiving from the consumer’s attorney any commission, referral fee, rebate, or other compensation;
- They are prohibited from assigning a litigation financing contract (with certain exceptions); and
- They are prohibited from reporting the consumer to a consumer reporting agency if insufficient funds remain from the net proceeds of the litigation to repay the financier.
With regard to the transaction, the amendment imposes many requirements, such as the following:
- The transaction must be set forth in a written contract that is completely filled in with no incomplete sections when the contact is offered or presented to the consumer;
- The contract is required to include certain disclosures set forth in the amendment in at least 14-point, bold font placed clearly and conspicuously within the contract;
- With regard to certain disclosures, the amendment sets forth required language;
- The contract must contain a right of rescission;
- The contract must contain a written acknowledgment by the consumer’s attorney (if the consumer is represented) of certain facts, including that the attorney is not receiving a fee or compensation for referring the consumer to the financier; and
- The contract is prohibited from containing a mandatory arbitration clause.
If the requirements are not followed, the consequences can be steep. The amendment provides that any violation of Article 6N shall render the contract unenforceable by the financier, any successor-in-interest, or the consumer.
If you or your company has any involvement in litigation financing, review this amendment. The above lists are just a few of the requirements it imposes. There are many more requirements imposed on the financier, the transaction, and the consumer’s attorney, such as the requirement that any contract be produced in litigation without awaiting a discovery request.
