Banks Committee

JOINT FAVORABLE REPORT

Bill No.:

HB-5419

Title:

AN ACT CONCERNING CASH ADVANCE CONTRACTS.

Vote Date:

3/20/2012

Vote Action:

Joint Favorable Substitute

PH Date:

3/15/2012

File No.:

SPONSORS OF BILL:

Banks Committee, Representative Linda Schofield

REASONS FOR BILL:

To regulate the industry that provides cash advances for pending legal settlements and to cap the interest that can be charged on these cash advances at 12 percent.

SUBSTITUTE LANGUAGE

Changes title of the bill to “AN ACT CONCERNING NONRECOURSE CIVIL LITIGATION PURCHASE AGREEMENTS,” defines the practice of settlement cash advances as “Nonrecourse civil litigation purchase agreements,” requires companies operating in the state to register with the Department of Consumer Protection, creates guidelines for cancelation of agreements without penalty, require statements explaining the costs of the agreement, provides for reasonable attorney's fees in case of breach of contract, explains what language must be included on the agreement, and prohibits interest being assessed after thirty six months.

RESPONSE FROM ADMINISTRATION/AGENCY:

None

NATURE AND SOURCES OF SUPPORT:

Roger J. Anstey supports the bill. Mr. Anstey is an attorney who has a client that took out an advance of $2000. The advance was compounded monthly at 4.99 percent. By the time her case was resolved almost four years later she owed over $20,000, which was negotiated down to $10,000. He asked that legislation require any company doing business in the state to register with the Department of Banking, cap the length of time that interest can be added, cap the interest rate at a reasonable percentage, do not allow arbitration as a form of resolution, require the State of Connecticut to be the venue for any litigation and require the company to disclose the amount of pay back in six month intervals.

Raphael L. Podolsky, Legal Assistance Resource Center of Connecticut supports imposing the 12% usury limit because cash advanced contracts attempt to be written in a way to avoid usury rates. He also asked that the bill explicitly protect the rights of personal injury plaintiffs to retain all funds that they win in excess of the amount advanced.

NATURE AND SOURCES OF OPPOSITION:

Gail Markels, Executive Director of the American Legal Finance Association (ALFA) expressed opposition to defining legal funding as a loan and imposing a 12 percent rate cap, which would make it impossible for the legal funding industry to do business in Connecticut because 15 to 20% of funded cases are money losers for the industry. She went on to say that legal funding does not create frivolous litigation, that legal funding enables plaintiffs to provide for their life's needs while awaiting settlement, that funding does not enable plaintiffs to get more than they deserve, that legal funding is not a pay day loan, and that legal funding is non-recourse and not a loan because a loan because cash advances do not have to be repaid if the plaintiff does not win.

Kelly Gilroy, Oasis Legal Finance is opposed to classifying cash advanced contracts as a loan because the agreements are non-recourse and they do not garnish wages or impact credit.

Reported by: Adam Skowera

Date: 3/27/2012