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February 13, 2017

CFPB and NY AG Sue Settlement Funding Company

On February 7, 2017, the Consumer Financial Protection Bureau and New York Attorney General Eric Schneiderman sued RD Legal Funding, LLC and related entities ("RD Legal") in the U.S. District Court for the Southern District of New York for violations of federal and New York consumer protection laws. RD Legal engages in settlement funding, where it advances funds to consumers that anticipate receiving funds from legal settlements in exchange for an assignment of a right to receive a portion of the settlement payout. Specifically at issue in this case are consumers that anticipate receiving settlement awards from the Zadroga Fund (for 9/11 first responders) and former NFL players who are eligible to receive payment from the NFL concussion settlement.

The complaint alleges that RD Legal's advances, although structured as a purchase and assignment, were in fact loans and, therefore, in violation of state lending and usury laws. As a result, according to the complaint, RD Legal unlawfully collected on contracts that are void or unenforceable under state law. The complaint also alleges that RD Legal made false claims to consumers, including an ability to expedite processing of the consumer's settlement award, and that RD Legal failed to disclose the terms of the transaction in a way that allowed consumers to compare the cost of the product with other comparable products. In addition, the complaint asserts that the consumer's assignment of the right to a portion of the settlement payout was invalid. The complaint asserts various violations of law stemming from these allegations not only against RD Legal but also its founder and owner in an individual capacity.

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