Insights

During this last legislative session, the Oklahoma legislature passed a Bill regulating “consumer litigation funding transactions” as a new addition to Article 3 (Loans) of the Oklahoma Uniform Consumer Credit Code. Oklahoma Senate Bill 1016, the Consumer Litigation Funding Act (the “Act”), will be effective November 1, 2013. In addition, the Oklahoma Department of Consumer Credit (the “Department”) recently announced the establishment of a new type of license, a consumer litigation funder license, effective November 1, 2013.

Here’s a brief summary of some of the more relevant definitions, provisions and requirements of the Act, including licensing.

The Act defines a consumer litigation funding transaction as a non-recourse transaction in which a consumer assigns to a consumer litigation funder, and a consumer litigation funder purchases a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award or verdict obtained in a consumer’s legal claim. A legal claim can include a civil action, an alternative dispute resolution proceeding, or an administrative proceeding before a state agency, except for workers’ compensation claims. A consumer litigation funding agreement (an “Agreement”) means an agreement under which money is provided to or on behalf of a consumer by a consumer litigation funder for a purpose other than prosecuting a consumer’s legal claim and the repayment of the money provided to a consumer is an accordance with a litigation funding transaction, the terms of which are included as part of the consumer litigation funding agreement. A consumer litigation funder is a person that enters into an Agreement with a consumer.

For purposes of entering into an Agreement with a consumer, there are some exceptions to application of the Act. For example, the Act does not apply to:

• An attorney who, at the time money is provided to or on behalf of a consumer under the Agreement, has an attorney-client relationship with the consumer concerning the consumer’s legal claim;
• An accountant who provides accounting services to the consumer; or
• An immediate family member of the consumer.

The Agreement must meet several requirements. It must:

• Be in writing;
• Contain the initials of the consumer on each page; and
• Be otherwise complete when presented to the consumer for his/her signature.

In addition, an Agreement may be entered into only if the Agreement relates to either:

• An existing legal claim that has been made by or on behalf of the consumer against another person, including the other person’s insurer or the consumer’s own insurer; or
• An existing proceeding in which the consumer’s legal claim is intended to be resolved, and the consumer is represented by an attorney.

The Agreement also must include a right of rescission that permits the consumer to cancel the Agreement without penalty or obligation if, not later than the 5th business day after funding, the consumer returns to the litigation funder the uncashed check, or sends a notice of cancellation and the full amount of disbursed funds to the litigation funder. The Act also contains detailed disclosure requirements, including required type size, bold language, the proper placement of required language and specifies how the consumer’s right of rescission must be presented in the Agreement.

In addition, the Act provides that an attorney representing a consumer in the legal claim is not under a duty to assign any portion of payments from a settlement, judgment, award, or verdict to the consumer litigation funder unless the attorney has agreed to do so in writing. A consumer litigation funder must require the amount due under the Agreement to be paid to the funder in a predetermined amount. Finally, a consumer litigation funder is prohibited from engaging in certain specified activities or conduct.

Any person that enters into a consumer litigation funding agreement with a consumer is required to obtain a consumer litigation funder license from the Department, and must renew the license every 2 years. The Department recently announced the establishment of the consumer litigation funder license, to be effective the date the Act goes into effect. The Administrator is authorized to determine the character and fitness of an applicant for a license, to require an applicant or license holder to file a bond or post an irrevocable letter of credit, and to set any necessary administrative hearing. As announced by the Department, consumer litigation funders will be required to pay a $290 license fee that is renewable every 2 calendar years on or before December 1st, and file a $50,000 bond. License applications and additional information regarding the consumer litigation funder license will be available on the Department’s website, www.ok.gov/okdocc. Finally, the Administrator must adopt rules and procedures necessary to implement the Act, such as rules regarding the examination of licensees, revocation and suspension of licensees, record keeping requirements and enforcement procedures, by July 1, 2014.

Eric L. Johnson is a Partner in the Oklahoma City, Oklahoma office of Hudson Cook, LLP. Eric can be reached at 405-602-3812 or by email at ejohnson@hudco.com.