AN ACT CONCERNING CASH ADVANCE CONTRACTS AND PLAINTIFFS IN PERSONAL INJURY AND WRONGFUL DEATH CASES.

AN ACT CONCERNING CASH ADVANCE CONTRACTS AND PLAINTIFFS IN PERSONAL INJURY AND WRONGFUL DEATH CASES.

This bill requires a cash advance company to (1) register its name, address, and principal place of business with the Department of Consumer Protection (DCP) and (2) submit proposed standardized contract forms to DCP.

The bill also requires cash advance companies, and their employees who enter cash advance contracts, to write contracts that comply with the law requiring plain language in consumer contracts and to disclose the amount of fees and interest the consumer must pay (see BACKGROUND).

The bill requires cash advance contracts to (1) give consumers five business days in which to cancel a contract; (2) contain certain provisions; and (3) be printed in both English and Spanish, with exceptions for negotiations conducted in other languages.

If a cash advance contract provides for attorney's fees and costs in the case of a breach of the contract by either party, the bill requires contracts to provide that the attorney's fees and costs must be reasonable and may be recovered by the prevailing party. Any limitation placed on such attorney's fees and costs must apply equally to both parties.

The bill prohibits the contracts from requiring mandatory arbitration to resolve disputes.

A violation of the bill's requirements is deemed to be an unfair trade practice (see BACKGROUND).

*Senate Amendment “A” (1) requires the DCP commissioner to create a list of registered cash advance companies, (2) requires the companies to report data to DCP, (3) requires the commissioner to report annually on the industry's activities and charges, and (4) makes minor and technical changes.

A cash advance contract is a financial transaction resulting in an advance of compensation to a consumer who has a pending personal injury or wrongful death claim or civil action in exchange for the contractual right to receive any funds in excess of the amount of that advance from the proceeds of any settlement, judgment, or verdict resulting from the claim or action, including nonrecourse capital advances made for such purposes (see BACKGROUND). A cash advance company is one that provides or offers to provide a nonrecourse capital advance based on a consumer's status as a plaintiff in a pending personal injury or wrongful death claim or civil action. The bill defines “consumer” as a person, estate, legal representative, or assignee of a person or estate who has a financial interest in a pending personal injury or wrongful death claim or civil action or has a reasonable expectation of receiving compensation from such a claim or action.

The bill requires DCP to maintain a list of registered cash advance companies and make it available on its Internet web site. It requires cash advance companies to submit proposed standardized contract forms to DCP for the commissioner's approval before entering into a cash advance contract.

It requires the DCP commissioner to require each cash advance company to submit by April 1 each year, data including the number of cash advance contracts executed in the state, the amount of funding for each such contract, the number of such contracts required to be repaid by consumers, the total amount charged consumers, including: application fees, processing fees, document fees, attorney fees, itemized fees, and the daily, monthly and annual fees charged under the contacts. The data must be submitted in a form and manner acceptable to the commissioner.

The bill requires the DCP commissioner to report to the General Law Committee summarizing the activities of the cash advance companies in the state and of the industry in the aggregate, including: the gross amount of the advances they made under the contracts and (2) the total amount of the charges they imposed on consumers, expressed as an annualized percentage in relation to the advances. The report, which must be submitted by December 31 each year beginning in 2009, must also include a list of registered companies.

The bill requires a cash advance contract to allow a consumer to cancel it within five business days after receiving a cash advance, without penalty or further obligation. The contracts must include the following notice, written clearly and conspicuously: “CONNECTICUT CONSUMER'S RIGHT TO CANCELLATION: YOU MAY CANCEL THIS CONTRACT WITHOUT PENALTY OR FURTHER OBLIGATION WITHIN FIVE BUSINESS DAYS FROM THE DATE YOU RECEIVE FUNDING FROM (insert the name of the cash advance company). ”

The contracts must specify that, for the cancellation to be effective, the consumer must either:

1. return the full amount of the disbursed funds to the cash advance company by delivering the cash advance company's uncashed check to the office address designated on the disclosure statement, or

2. mail a notice of cancellation and return the full amount in the form of (a) the cash advance company's check, (b) a registered or certified check, or (c) a money order by insured, registered, or certified United States mail, postmarked within five business days of receiving the funds and mailed to the address stated in the cash advance contract.

The bill requires cash advance contracts to be filled in completely and include the following disclosures on the first page, in 12-point or larger bold type, with a heading entitled “Disclosure Statement”:

1. the total amount to be advanced to the consumer;

2. itemization of all fees;

3. percentage fee or rate of return, stated on an annualized basis, including frequency of compounding; and

4. the total amount the consumer must repay, calculated at six-month intervals, carried forward to 36 months, including all fees and any required minimum payment.

The bill requires each cash advance company to prepare a standardized form designed to provide the required information and file it with the DCP commissioner for approval before using it.

The bill requires consumers to initial each page of a cash advance contract. All cash advance contracts must include a legend, immediately above the consumer's signature, in 12-point or larger bold type, stating: “DO NOT SIGN THIS CASH ADVANCE CONTRACT BEFORE YOU READ IT COMPLETELY OR IF IT CONTAINS ANY BLANK SPACE. YOU SHOULD OBTAIN THE ADVICE OF AN ATTORNEY BEFORE YOU SIGN THIS CONTRACT. YOU ARE ENTITLED TO A COMPLETELY FILLED IN COPY OF THIS CONTRACT. ”

The bill also requires cash advance contracts to include a written acknowledgement by the consumer's attorney of record stating the attorney has reviewed the contract and explained its terms to the consumer, including the annualized rate of return used to calculate the amount to be paid by the consumer.

Except when oral negotiations are conducted in another language, the bill requires cash advance contracts to be printed in both English and Spanish. If oral negotiations are conducted in another language:

1. the contract's principal terms must be translated in writing into the consumer's native language;

2. the consumer must sign the translated document containing the principal terms and initial each page; and

3. the translator or attorney of record must sign an acknowledgement confirming that the principal terms have been presented to the consumer in his or her native language and acknowledged by the consumer in writing.

For this purpose, “principal terms” include all of the requirements relating to (1) contracts being written in plain language with all blanks filled in and containing required disclosures, (2) a consumer's right to cancel within five business days, (3) the requirement that a consumer initial each page, (4) the required statement that must appear immediately above a consumer's signature, and (5) a consumer's attorney of record reviewing the contract.

The law requires all consumer contracts, defined as those having a value of $ 25,000 or residential leases, to be written in plain language and establishes two alternative tests for determining if the requirement has been satisfied. The subjective test requires the contracts to meet nine standards, such as using short sentences and paragraphs, everyday words, and readable type. The objective test has 11 standards, such as limiting the number of words per sentence to 50 and words per paragraph to 150, limiting the average number of syllables per word to less than 1. 55, and prohibiting type face smaller than eight points (CGS § 42-152).

An injured person who receives a non-recourse payment does not have to repay the advance if they are unsuccessful in the lawsuit, and only has to repay up to the amount of their share of the settlement in the event that the settlement is smaller than anticipated

The law prohibits businesses from engaging in unfair and deceptive acts or practices. CUTPA allows the DCP commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $ 5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. The act also allows individuals to sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $ 5,000 for willful violations and $ 25,000 for violation of a restraining order.

Yea

Nay

(03/06/2008)

Yea

Nay

(04/11/2008)