HF 4407

as introduced - 93rd Legislature (2023 - 2024) Posted on 02/28/2024 04:35pm

A bill for an act
relating to consumer protection; enacting the Consumers in Crisis Protection Act;
providing civil penalties; authorizing administrative rulemaking; proposing coding
for new law as Minnesota Statutes, chapter 45B.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [45B.01] SHORT TITLE.
new text end

new text begin This chapter may be cited as the Consumers in Crisis Protection Act.
new text end

Sec. 2.

new text begin [45B.02] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin For the purposes of this chapter, the terms defined in this section
have the meanings given.
new text end

new text begin Subd. 2. new text end

new text begin Affiliate. new text end

new text begin "Affiliate" means a company that controls, is controlled by, or is
under common control with another company, as set forth in the Bank Holding Company
Act of 1956, United States Code, title 12, section 1841, et seq., as amended.
new text end

new text begin Subd. 3. new text end

new text begin Charges. new text end

new text begin "Charges" means a fee permitted by this chapter that is charged to a
consumer by a consumer legal funding company, regardless of how denominated. Charges
includes fees denominated as interest or rate.
new text end

new text begin Subd. 4. new text end

new text begin Commissioner. new text end

new text begin "Commissioner" means the commissioner of commerce.
new text end

new text begin Subd. 5. new text end

new text begin Consumer. new text end

new text begin "Consumer" means an individual residing in Minnesota.
new text end

new text begin Subd. 6. new text end

new text begin Consumer legal funding company. new text end

new text begin "Consumer legal funding company" means
a person that enters into a consumer legal funding transaction with a consumer, whether or
not the person is registered under this chapter.
new text end

new text begin Subd. 7. new text end

new text begin Consumer legal funding contract. new text end

new text begin "Consumer legal funding contract" means
a contract for a consumer legal funding transaction.
new text end

new text begin Subd. 8. new text end

new text begin Consumer legal funding transaction. new text end

new text begin "Consumer legal funding transaction"
means a nonrecourse transaction in which a consumer sells an unvested, contingent future
interest in the potential net proceeds of a settlement or judgment obtained from a legal claim
in exchange for no more than $400,000, provided:
new text end

new text begin (1) the consumer is required to use the funds to address personal needs or household
expenses;
new text end

new text begin (2) the consumer is prohibited from using the funds to pay for attorney fees, legal filings,
legal marketing, legal document preparation or drafting, appeals, expert testimony, or other
litigation-related expenses; and
new text end

new text begin (3) the consumer is not required to use the funds in a particular manner, including to
make specific payments or secure specific services.
new text end

new text begin Subd. 9. new text end

new text begin Funded amount. new text end

new text begin "Funded amount" means the amount of money provided to
or on behalf of a consumer pursuant to a consumer legal funding contract. Funded amount
does not include charges.
new text end

new text begin Subd. 10. new text end

new text begin Gross proceeds. new text end

new text begin "Gross proceeds" means the total amount of proceeds
recovered by a consumer as a result of a legal claim.
new text end

new text begin Subd. 11. new text end

new text begin Health care provider. new text end

new text begin "Health care provider" has the meaning given in section
62A.63, subdivision 2.
new text end

new text begin Subd. 12. new text end

new text begin Legal claim. new text end

new text begin "Legal claim" means a civil claim or cause of action.
new text end

new text begin Subd. 13. new text end

new text begin Net proceeds. new text end

new text begin "Net proceeds" means the amount recovered by a consumer as
a result of a legal claim, less:
new text end

new text begin (1) attorney fees and litigation costs associated with the legal claim;
new text end

new text begin (2) attorney, health care provider, or subrogation liens; and
new text end

new text begin (3) child support, Medicare, tax, or other statutory or governmental liens.
new text end

Sec. 3.

new text begin [45B.03] RELATIONSHIP WITH OTHER LAW.
new text end

new text begin A consumer legal funding transaction that complies with this chapter is not a loan and
is not subject to any law governing loans or investment contracts. To the extent this chapter
conflicts with any other law, this chapter prevails with respect to regulating consumer legal
funding transactions in Minnesota.
new text end

Sec. 4.

new text begin [45B.04] EXEMPTIONS.
new text end

new text begin This chapter does not apply to:
new text end

new text begin (1) an immediate family member of the consumer;
new text end

new text begin (2) a bank, lender, financing entity, or other special purpose entity that (i) provides
financing to a consumer legal funding company, or (ii) receives an interest in consumer
legal funding from a consumer legal funding company; or
new text end

new text begin (3) an attorney or accountant who provides services to a consumer.
new text end

Sec. 5.

new text begin [45B.05] CONSUMER LEGAL FUNDING COMPANY; REGISTRATION;
FEE; FINANCIAL STABILITY.
new text end

new text begin Subdivision 1. new text end

new text begin Registration generally. new text end

new text begin (a) A person is prohibited from entering into a
consumer legal funding transaction with a consumer without first:
new text end

new text begin (1) registering as a consumer legal funding company with the commissioner, in a format
prescribed by the commissioner;
new text end

new text begin (2) submitting the registration fee under subdivision 2; and
new text end

new text begin (3) submitting proof of financial stability, as required under this chapter.
new text end

new text begin (b) A consumer legal funding contract between a consumer and a consumer legal funding
company that has not registered under this chapter is void and unenforceable.
new text end

new text begin Subd. 2. new text end

new text begin Fee amount; renewals. new text end

new text begin (a) A consumer legal funding company must pay a
nonrefundable fee of $1,000 at the time of registration and at the time of each registration
renewal. Registrations shall be renewed every three years.
new text end

new text begin (b) A consumer legal funding company registration under this chapter must be renewed
every three years.
new text end

new text begin Subd. 3. new text end

new text begin Registration denial. new text end

new text begin The commissioner may deny a consumer legal funding
company's registration or registration renewal if the consumer legal funding company fails
to comply with this chapter.
new text end

Sec. 6.

new text begin [45B.06] REGISTRATION APPLICATION.
new text end

new text begin Subdivision 1. new text end

new text begin Application. new text end

new text begin (a) An application to register under this chapter must be
filed in a form determined by the commissioner. To be considered complete, the applicant
or the applicant's designee must verify the application by attestation. An application must
include:
new text end

new text begin (1) the applicant's legal name, along with any assumed business name; principal address,
including street address and mailing address; contact information; and Social Security
number or taxpayer identification number;
new text end

new text begin (2) the applicant's form and place of organization, if applicable;
new text end

new text begin (3) a certificate of good standing from the state in which the applicant is organized, if
applicable;
new text end

new text begin (4) a certificate of authority from the secretary of state to conduct business in Minnesota
or other evidence that the applicant is registered or qualified to do business in Minnesota;
new text end

new text begin (5) the qualifications and business history of the applicant, including a description of
any injunction or administrative order by any state or federal authority to which the person
is or has been subject for the past ten years;
new text end

new text begin (6) a record of any criminal convictions for the applicant or, in the case of an applicant
that is an entity, every officer of the applicant, for a ten-year period prior to the application
date, including the applicant's consent to (i) submit to a federal and state criminal background
check, and (ii) provide a set of the applicant's fingerprints, in a form acceptable to the
commissioner;
new text end

new text begin (7) evidence of the applicant's financial stability, submitted in the form of certified
financial statements by the applicant's chief financial officer or equivalent, that includes
proof of a surety bond or irrevocable letter of credit for $50,000, issued and confirmed by
a financial institution authorized by law to transact business in Minnesota; and
new text end

new text begin (8) any other information the commissioner deems relevant.
new text end

new text begin Subd. 2. new text end

new text begin Abandoned application. new text end

new text begin The commissioner may deem an application abandoned
if the applicant fails to respond to a written request for information by the commissioner
within 30 days of the date the commissioner makes the request.
new text end

Sec. 7.

new text begin [45B.07] CONSUMER LEGAL FUNDING CONTRACT; CONTENTS.
new text end

new text begin Subdivision 1. new text end

new text begin Contract template. new text end

new text begin Before entering into a consumer legal funding
transaction in Minnesota, a consumer legal funding company must file with the commissioner
a consumer legal funding template contract.
new text end

new text begin Subd. 2. new text end

new text begin Plain language requirement. new text end

new text begin A consumer legal funding contract must be (1)
written using plain language, and (2) understandable to the average consumer who makes
a reasonable effort under ordinary circumstances to read and comprehend the terms of the
contract without obtaining professional assistance.
new text end

new text begin Subd. 3. new text end

new text begin Required provisions. new text end

new text begin A consumer legal funding contract must include:
new text end

new text begin (1) the definitions for the terms "consumer," "consumer legal funding company," and
"consumer legal funding transaction," as established under section 45B.02, subdivisions 5,
6, and 8;
new text end

new text begin (2) an acknowledgment that the consumer is represented by an attorney for the legal
claim and has had an opportunity to discuss the contract with the consumer's attorney;
new text end

new text begin (3) a right of rescission, allowing the consumer to cancel the contract without penalty
or further obligation if, within ten business days of the date the contract is executed or the
date the consumer initially receives any portion of the funded amount, the consumer gives
notice of the rescission to the company and returns all money the company provided to the
consumer;
new text end

new text begin (4) the following disclaimer, in 12-point bold font and located immediately above the
location on the contract where the consumer's signature is required:
new text end

new text begin "Do not sign this contract before you have read the contract completely or if the contract
contains any blank spaces. You are entitled to a completely filled-in copy of the contract.
Before you sign this contract, you should obtain the advice of an attorney. Depending on
the circumstances, you may want to consult a tax, public or private benefits planning, or
financial professional. You acknowledge that your attorney in the legal claim has provided
no tax, public or private benefit planning, or financial advice regarding this transaction.
new text end

new text begin You are prohibited from using money from this transaction to pay attorney fees or costs
related to the litigation of your claim."; and
new text end

new text begin (5) a requirement that a copy of the executed consumer legal funding contract must be
promptly delivered to the consumer's attorney upon request.
new text end

new text begin Subd. 4. new text end

new text begin Consumer disclosures. new text end

new text begin Each contract must include consumer disclosures on
the first two pages, to the extent possible. The consumer disclosures must be in a form
prescribed by the commissioner. The consumer disclosures must include:
new text end

new text begin (1) a notification that some or all of the funded amount may be taxable;
new text end

new text begin (2) a description of the consumer's right of rescission;
new text end

new text begin (3) the total funded amount provided to the consumer under the contract;
new text end

new text begin (4) an itemization of charges under the contract;
new text end

new text begin (5) the total amount due from the consumer, in six-month intervals for 36 months,
including all charges;
new text end

new text begin (6) a statement that no additional charges may accrue 36 months after the date the
consumer legal funding contract is executed;
new text end

new text begin (7) a statement that the consumer does not owe payments other than the payments that
are disclosed on the disclosure form;
new text end

new text begin (8) in the event the consumer seeks more than one consumer legal funding contract, a
disclosure providing the cumulative amount the consumer owes for all transactions, including
charges under all contracts, if repayment is made any time after the contracts are executed;
new text end

new text begin (9) a statement that the company has no influence over any aspect of the consumer's
legal claim or any settlement or resolution of the consumer's legal claim, and that all decisions
related to the consumer's legal claim remain solely with the consumer and the consumer's
attorney;
new text end

new text begin (10) a statement that if there is no recovery of any money from the consumer's legal
claim, the consumer has no additional financial obligation to the company unless the
consumer committed fraud against the consumer legal funding company; and
new text end

new text begin (11) a statement that, if the net proceeds of the claim are insufficient to repay the
consumer's financial obligation to the company, which consists of the complete funded
amount and charges, the consumer is not responsible to the company for any amount in
excess of the net proceeds.
new text end

new text begin Subd. 5. new text end

new text begin Written acknowledgement. new text end

new text begin (a) The consumer legal funding contract must
contain a written acknowledgment by the attorney the consumer retained for the legal claim.
The written acknowledgment must attest to the following:
new text end

new text begin (1) to the best of the attorney's knowledge, the funded amounts and any charges relating
to the consumer legal funding transaction have been disclosed to the consumer;
new text end

new text begin (2) the attorney is being paid pursuant to a separate written fee agreement between the
consumer and the attorney, and the consumer legal funding company is not a party to that
agreement;
new text end

new text begin (3) gross proceeds of the legal claim must be deposited into the attorney's client trust
account or a settlement fund established to receive the gross proceeds of the legal claim on
behalf of the consumer;
new text end

new text begin (4) the attorney must comply with the consumer's written, irrevocable instructions with
regard to the consumer legal funding transaction;
new text end

new text begin (5) the attorney is obligated to (i) disburse proceeds from the legal claim, and (ii) pay
the funded amount and charges due under the consumer legal funding contract terms;
new text end

new text begin (6) only liens related to the legal claim, including attorney liens, Medicare, or other
statutory liens, take priority over the consumer legal funding company's lien. All other liens
take priority by operation of law; and
new text end

new text begin (7) the attorney for the legal claim has not provided tax, public or private benefit planning,
or financial advice regarding the consumer legal funding transaction.
new text end

new text begin (b) If the attorney retained by the consumer for the legal claim fails to provide written
attestation required under this subdivision, the consumer legal funding transaction contract
is null and void.
new text end

new text begin Subd. 6. new text end

new text begin Substitution of counsel. new text end

new text begin A consumer legal funding contract remains valid and
enforceable in the event that, subsequent to execution, a consumer moves to substitute
counsel or pursues a legal claim pro se.
new text end

Sec. 8.

new text begin [45B.08] NONRECOURSE OBLIGATION; AUTHORIZED CHARGES.
new text end

new text begin Subdivision 1. new text end

new text begin Generally. new text end

new text begin If a consumer does not obtain recovery from the consumer's
legal claim, the consumer is not required to repay a consumer legal funding company unless
the consumer committed fraud against the consumer legal funding company. If the net
proceeds of the claim are insufficient to repay the consumer's financial obligation, which
consists of the complete funded amount plus charges authorized under subdivision 2, to the
consumer legal funding company, the consumer is not responsible to the consumer legal
funding company for any amount in excess of the net proceeds.
new text end

new text begin Subd. 2. new text end

new text begin Authorized charges. new text end

new text begin A consumer legal funding company may charge a
consumer only:
new text end

new text begin (1) upon funding: (i) a charge that does not exceed 18 percent of the funded amount;
and (ii) a servicing charge that does not exceed 3.5 percent of the funded amount;
new text end

new text begin (2) upon every subsequent six-month anniversary: (i) a charge that does not exceed 18
percent of the funded amount; and (ii) a servicing charge that does not exceed 3.5 percent
of the funded amount. If, within five days after the date a new six-month interval begins,
the consumer legal funding company receives payment of the full amount the consumer
owes for the immediately preceding six-month interval, the consumer legal funding company
is prohibited from making additional charges for the new six-month interval; and
new text end

new text begin (3) a document preparation charge that does not exceed $250, which may be deducted
from the funded amount, to defray the cost to open, fund, administer, and terminate a
consumer legal funding transaction.
new text end

new text begin Subd. 3. new text end

new text begin No accrual. new text end

new text begin (a) Charges do not accrue on a consumer legal funding transaction
beginning 36 months after the date the consumer legal funding contract is executed.
new text end

new text begin (b) Notwithstanding paragraph (a), a consumer legal funding company may assess
charges on any additional funding, whether by amendment to the consumer legal funding
contract or by execution of a new consumer legal funding contract, for 36 months after the
date additional funding is provided.
new text end

Sec. 9.

new text begin [45B.09] CONSUMER LEGAL FUNDING COMPANY; PROHIBITED
ACTS.
new text end

new text begin A consumer legal funding company is prohibited from:
new text end

new text begin (1) paying or offering to pay commissions, referral fees, or any other form of
consideration to any attorney, law firm, health care provider, or law firm or health care
provider employee for referring a consumer to the company;
new text end

new text begin (2) accepting any commissions, referral fees, or any other form of consideration from
any attorney, law firm, health care provider, or law firm or health care provider employee;
new text end

new text begin (3) referring, in furtherance of the initial legal funding, a consumer or potential consumer
to an attorney, law firm, health care provider, or law firm or health care provider employee,
except that a consumer legal funding company may direct a consumer or potential consumer
to a local or state bar association referral service or bona fide nonprofit legal aid organization;
new text end

new text begin (4) advertising false or misleading information regarding the consumer legal funding
company's products or services;
new text end

new text begin (5) receiving any right to make any decisions with respect to or attempting to influence
a decision relating to the conduct, settlement, or resolution of the consumer's legal claim.
The right to make decisions relating to the conduct, settlement, or resolution of the consumer's
legal claim remains solely with the consumer and the consumer's attorney;
new text end

new text begin (6) knowingly paying or offering to pay for case expenses, including court costs, filing
fees, or attorney fees, either during or after the legal claim's resolution;
new text end

new text begin (7) failing to promptly provide copies of contract documents to the consumer or the
consumer's attorney upon request;
new text end

new text begin (8) providing legal advice to the consumer regarding the consumer legal funding
transaction or the underlying legal claim;
new text end

new text begin (9) reporting a consumer to a credit reporting agency if insufficient money remains from
the net proceeds to repay the company, unless the consumer has committed fraud against
the consumer legal funding company;
new text end

new text begin (10) knowingly providing funding to a consumer who has previously assigned or sold
a portion of the consumer's right to proceeds from the consumer's legal claim without first
purchasing a prior unsatisfied consumer legal funding company's entire funded amount and
contracted charges, unless a lesser amount is otherwise expressly agreed to in writing by
the consumer legal funding companies. Multiple consumer legal funding companies may
agree to contemporaneously provide funding to a consumer, provided the consumer and the
consumer's attorney consent to the agreement in writing;
new text end

new text begin (11) collecting from a consumer any fees or charges that are not authorized under this
chapter; or
new text end

new text begin (12) selling a contract in whole or in part to a third party, except that if the consumer
legal funding company retains responsibility to collect payment, administer, and otherwise
enforce the consumer legal funding contract, the prohibition under this clause does not apply
to:
new text end

new text begin (i) an assignment to the consumer legal funding company's wholly owned subsidiary;
new text end

new text begin (ii) an assignment to the consumer legal funding company's affiliate that is under common
control; or
new text end

new text begin (iii) granting a security interest under chapter 336, article 9, or as otherwise permitted
by law.
new text end

Sec. 10.

new text begin [45B.10] ATTORNEY PROHIBITIONS.
new text end

new text begin (a) An attorney retained by a consumer for a legal claim is prohibited from having a
financial interest in the consumer legal funding company that is offering consumer legal
funding to the consumer.
new text end

new text begin (b) An attorney who has referred the consumer to the consumer's retained attorney is
prohibited from having a financial interest in the consumer legal funding company that is
offering consumer legal funding to the consumer.
new text end

new text begin (c) A consumer legal funding contract that violates this section is null and void, and no
person has a right to collect, attempt to collect, receive, or retain any funded amount or
charges related to the consumer legal funding.
new text end

Sec. 11.

new text begin [45B.11] PRIVILEGES; EFFECT OF COMMUNICATION.
new text end

new text begin (a) A communication between a consumer's attorney and a consumer legal funding
company that is necessary to ascertain the status of a legal claim or a legal claim's expected
value is not discoverable by a party with whom the claim is filed or against whom the claim
is asserted.
new text end

new text begin (b) This section does not limit, waive, or abrogate the scope or nature of any statutory
or common-law privilege, including but not limited to work-product doctrine and
attorney-client privilege.
new text end

Sec. 12.

new text begin [45B.12] CONSUMER LEGAL FUNDING TRANSACTIONS;
DISCLOSURE.
new text end

new text begin (a) Within 30 calendar days of the date a written request is received, a consumer must
disclose to any party to a legal claim whether the consumer has entered into a consumer
legal funding transaction.
new text end

new text begin (b) If a consumer enters into a consumer legal funding transaction after responding to
a request made under paragraph (a), the consumer must disclose that the consumer has
entered into a consumer legal funding transaction to the requesting person within 30 calendar
days of the date the consumer entered into the consumer legal funding transaction.
new text end

Sec. 13.

new text begin [45B.13] CONSUMER LEGAL FUNDING CONTRACTS; DISCOVERY
AND ADMISSION.
new text end

new text begin Subdivision 1. new text end

new text begin Discovery. new text end

new text begin Notwithstanding any agreement or provision with respect to
confidentiality, consumer legal funding contracts are presumed to be discoverable in a civil
action. A consumer may seek to rebut the presumption under this subdivision.
new text end

new text begin Subd. 2. new text end

new text begin Admission. new text end

new text begin Consumer legal funding transactions disclosed under section 45B.12
and consumer legal funding contracts discovered pursuant to subdivision 1 are presumed
to be inadmissible as evidence. A party may seek to rebut the presumption under this
subdivision.
new text end

Sec. 14.

new text begin [45B.14] EXAMINATIONS; CHARGES.
new text end

new text begin (a) The commissioner may conduct an examination of a consumer legal funding company
to: (1) protect consumer interests; (2) determine a consumer legal funding company's financial
stability; and (3) determine a consumer legal funding company's compliance with this
chapter.
new text end

new text begin (b) The consumer legal funding company must reimburse the commissioner for all
reasonable costs and expenses incurred to conduct the examination. The commissioner may
waive reimbursement for the costs and expenses incurred to conduct an examination under
this section if doing so is in the public interest.
new text end

Sec. 15.

new text begin [45B.15] RULES.
new text end

new text begin The commissioner may adopt rules necessary to enforce this chapter. Before proposing
a rule, the commissioner must notify all companies registered or pending registration under
this chapter.
new text end

Sec. 16.

new text begin [45B.16] PENALTIES; ENFORCEMENT.
new text end

new text begin Subdivision 1. new text end

new text begin Commissioner enforcement. new text end

new text begin (a) If the commissioner determines that a
consumer legal funding company intentionally violated any provision of this chapter, the
commissioner may, after notice and an opportunity for hearing:
new text end

new text begin (1) revoke, suspend, or refuse to renew a consumer legal funding company's registration;
new text end

new text begin (2) order a consumer legal funding company to cease and desist from entering into
additional consumer legal funding transactions;
new text end

new text begin (3) assess a civil penalty of not more than $10,000 for each violation; or
new text end

new text begin (4) order the consumer legal funding company to make restitution to an injured consumer.
new text end

new text begin (b) The clear proceeds of any penalty assessed under paragraph (a), clause (3), must be
remitted to the general fund.
new text end

new text begin Subd. 2. new text end

new text begin No limitation. new text end

new text begin The powers vested in the commissioner under this section are
in addition to and do not limit the commissioner's or any other officer, employee, or agent
of the state's ability to take enforcement action.
new text end