An amendment to the West Virginia Consumer Credit and Protection Act takes effect this week that will regulate and impose restrictions on “litigation financiers.” The new amendment, found in Sections 46A-6N-1 through 8 (“Article 6N”), adds an article to the current Act, which is one of the primary statutes that governs consumer transactions in West Virginia.
Article 6N defines “litigation financing” as “a nonrecourse transaction in which financing is provided to a consumer in return for a consumer’s assigning to the litigation financier a contingent right to receive an amount of the potential proceeds of the consumer’s judgment, award, settlement, or verdict obtained with respect to the consumer’s legal claim.”
A “litigation financier” is any person, entity, or partnership that engages in litigation financing.
Article 6N regulates both litigation financiers and litigation financing transactions. Financiers and consumers’ attorneys will now face numerous statutory requirements, including but not limited to:
- Financiers are required to become registered and post a bond;
- Financiers are prohibited from paying or receiving from the consumer’s attorney any commission, referral fee, or other compensation;
- Financiers cannot assign a litigation financing contract, with certain exceptions;
- Financiers are prohibited from reporting the consumer to a consumer reporting agency if insufficient funds remain from the net proceeds of the litigation to repay the financier;
- The transaction must be set forth in a written contract with no incomplete sections at the time the contract is offered or presented to the consumer;
- The contract must include certain disclosures set forth in the amendment in at least 14-point, bold font placed clearly and conspicuously in the contract on the first two pages, to the extent possible;
- Certain language must be used with regard to certain disclosures, as provided in the Amendment;
- The contract must contain a right of rescission;
- The contract must contain a written acknowledgement by the consumer’s attorney of certain facts, including that the attorney is not receiving a fee or compensation for referring the consumer to the financier;
- The financier may not charge an annual fee to the consumer of more than 18 percent of the original amount of money provided to the consumer for the litigation financing transaction;
- The financier may not attempt to waive any of the consumer’s remedies;
- The financier may not offer legal advice; and
- The contract must not contain an arbitration clause.
Any violation of Article 6N will render the contract unenforceable by the financier, any successor-in-interest, or the consumer.
Article 6N imposes additional requirements not listed above on the financier and the consumer’s attorney. For instance, the contract must be produced in litigation without awaiting a discovery request.