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AN ACT relating to pre-settlement funding providers and making an appropriation
therefor.
Be it enacted by the General Assembly of the Commonwealth of Kentucky:
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
As used in Sections 1 to 8 of this Act:
(1)
"Pre-settlement funding provider" or "provider" means a person that enters into
a pre-settlement funding transaction with a Kentucky consumer;
(2)
"Consumer" means a person residing or domiciled in Kentucky or who elects to
enter into a transaction under Sections 1 to 8 of this Act, whether it be in person,
over the Internet, by facsimile, or by any other electronic means;
(3)
"Legal claim" means a civil or statutory claim or action; and
(4)
"Pre-settlement funding" means a transaction in which a pre-settlement funding
provider purchases and a consumer assigns the contingent right to receive an
amount of the potential proceeds of a settlement, judgment, award, or verdict
obtained in the consumer's legal claim to the pre-settlement funding provider.
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
(1)
All pre-settlement funding contracts shall contain the disclosures specified in this
subsection, which shall constitute material terms of the contract. Unless
otherwise specified, the disclosures shall be typed in at least twelve (12) point,
bold type and be placed clearly and conspicuously within the contract, as follows:
(a)
On the front page under appropriate headings, language specifying:
1.
The total amount of funds to be paid to the consumer;
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2.
An itemization of one (1) time fees; and
3.
The total amount to be assigned by the consumer to the pre-settlement
funding provider, in six (6) month intervals for thirty-six (36) months,
including all fees;
(b)
Within the body of the contract, "Consumer's Right to Cancellation: You
may cancel this contract without penalty or further obligation within five
(5) business days from the date you receive funding from (insert name of
the pre-settlement funding provider).";
(c)
Within the body of the contract, "The pre-settlement funding provider
agrees that it shall receive no right to and will not make any decisions with
respect to the conduct of the underlying civil action or claim or any
settlement or resolution thereof and that the right to make those decisions
remains solely with you and your attorney in the civil action or claim.";
(d)
Within the body of the contract, fifteen (15) point, bold type in all capital
letters contained within a box which states, "IF THERE IS NO
RECOVERY OF ANY MONEY FROM YOUR LEGAL CLAIM OR IF
THERE IS NOT ENOUGH MONEY TO SATISFY THE PORTION
ASSIGNED TO THE PRE-SETTLEMENT FUNDING PROVIDER IN
FULL, YOU WILL NOT OWE THE PRE-SETTLEMENT FUNDING
PROVIDER ANYTHING IN EXCESS OF YOUR RECOVERY UNLESS
YOU HAVE VIOLATED THIS PURCHASE AGREEMENT."; and
(e)
Located immediately above the place on the contract where the consumer's
signature is required, "Do not sign this contract before you read it
completely or if it 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,
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you may want to consult a tax, public or private benefit planning, or
financial professional. You acknowledge that your attorney in the civil
action or claim has provided no tax, public or private benefit planning, or
financial advice regarding this transaction.".
(2)
All pre-settlement funding contracts shall meet the following requirements:
(a)
The contract shall be completely filled in when presented to the consumer
for signature;
(b)
The contract shall contain a right of rescission allowing the consumer to
cancel the contract without penalty or further obligation if, within five (5)
business days following the consumer's receipt of the funds, the consumer
either:
1.
Returns to the pre-settlement funding provider the full amount of the
disbursed funds by delivering the pre-settlement funding provider's
uncashed check to the pre-settlement funding provider's offices in
person; or
2.
Mails, by insured, certified, or registered United States mail, to the
address specified in the contract, a notice of cancellation and includes
in that mailing a return of the full amount of disbursed funds in the
form of the pre-settlement funding provider's uncashed check or a
registered or certified check or money order; and
(c)
The contract shall contain the initials of the consumer on each page.
(3)
The contract shall contain a written acknowledgment by the attorney
representing the consumer in the civil action or claim that states all of the
following:
(a)
All the costs and fees have been disclosed;
(b)
The attorney is being paid on a contingency basis pursuant to a written fee
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agreement and agrees to not utilize or accept any of the pre-settlement
funding to pay for the costs, fees, or expenses of the civil action or claim;
(c)
All proceeds of the civil litigation will be disbursed via either the trust
account of the attorney representing the consumer in the civil action or
claim or a settlement fund established to receive the proceeds of the civil
litigation from the defendant on behalf of the consumer;
(d)
The attorney is following the written instructions of the consumer with
regard to the pre-settlement funding; and
(e)
The attorney has not received a referral or other consideration from the
pre-settlement funding provider.
(4)
If a dispute arises between the consumer and the pre-settlement funding provider
concerning the contract between them, the responsibilities of the attorney
representing the consumer in the civil action or claim shall be no greater than
the attorney's responsibilities under the Kentucky Rules of Professional Conduct.
(5)
In the event that proceeds are paid into a settlement fund or trust, the pre-
settlement funding provider shall notify the administrator of the fund or trust of
any outstanding lien arising from the contract for pre-settlement funding.
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
(1)
No person shall engage in the business of pre-settlement funding unless that
person has first filed a registration statement with and received the approval of
the Attorney General pursuant to this section.
(2)
Registration materials shall be filed in the manner prescribed by the Attorney
General by administrative regulation and shall contain the information the
Attorney General requires to make an evaluation of the character, fitness, and
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financial responsibility of the applicant.
(3)
The pre-settlement funding provider shall report in writing to the Attorney
General any material change in the information contained in the registration
statement occuring after filing. The report shall be filed within thirty (30)
calendar days after the change occurs.
(4)
The completed registration statement shall be signed by the applicant, or the
chief executive officer if the applicant is an organization; sworn under oath that
the information is true, accurate, and complete; and notarized.
(5)
A registration approval issued under this section is neither transferable nor
assignable.
(6)
An initial registration shall be valid for the calendar year when granted and until
the close of December 31 of the following year. Renewal registrations shall take
effect on January 1 and be valid for two (2) years. The Attorney General may
issue a temporary certificate of registration while an application for registration
is pending.
(7)
Applications for renewal registrations shall be submitted no later than December
1. Failure to submit the registration by the December 1 deadline shall constitute
grounds for denial of the renewal.
(8)
An application for an initial registration shall be accompanied by a fee of one
thousand dollars ($1,000). An application for a renewal registration shall be
accompanied by a fee of two hundred dollars ($200). These funds shall be used
by the Attorney General to defer the costs of administering Sections 1 to 8 of this
Act.
(9)
(a)
A pre-settlement funding provider shall maintain a bond issued by a surety
company admitted to do business in this Commonwealth. The bond shall be
in the amount of fifty thousand dollars ($50,000) in favor of the Attorney
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General for the benefit of the Commonwealth for any violation of Sections
1 to 8 of this Act or any person suffering injury or loss by reason of any
violation of Sections 1 to 8 of this Act. A copy of the bond shall be filed with
the Attorney General with the registration application.
(b)
The bond required by paragraph (a) of this subsection shall be in effect
during the period of the pre-settlement funding provider's registration, as
well as for two (2) years after the pre-settlement funding provider ceases to
provide pre-settlement funding services to consumers.
(c)
A change in ownership of a pre-settlement funding provider shall not
release, cancel, or terminate liability under any bond previously filed unless
the Attorney General agrees in writing to the release, cancellation, or
termination because the pre-settlement funding provider has filed a new
bond meeting the requirements of paragraph (a) of this subsection.
(d)
The proceeds of the bond required by paragraph (a) of this subsection shall
be paid to any person suffering injury or loss by reason of any violation of
Sections 1 to 8 of this Act or to the Attorney General for any violation of
Sections 1 to 8 of this Act or shall be paid pursuant to the terms of any
order of a court of competent jurisdiction. Any person who is damaged by
any violation of Sections 1 to 8 of this Act may bring an action against the
bond to recover damages pursuant to this paragraph, provided the
aggregate liability of the surety does not exceed the amount of the bond.
(e)
In lieu of the bond required by paragraph (a) of this subsection, a pre-
settlement funding provider may, with the written approval of the Attorney
General, deliver to the Attorney General an irrevocable letter of credit
issued or confirmed by a financial institution authorized by law to transact
business in the Commonwealth. The irrevocable letter of credit shall be in
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the amount of fifty thousand dollars ($50,000) in favor of the Attorney
General for the benefit of the Commonwealth or any person suffering
injury or loss by reason of any violation of Sections 1 to 8 of this Act.
(10)
(a)
The Attorney General shall hold an administrative hearing meeting the
requirements of KRS Chapter 13B upon the written request of an applicant
regarding the applicant's qualifications for registration if:
1.
The Attorney General has notified the applicant in writing that the
application has been denied; or
2.
The Attorney General has not issued a registration within one
hundred twenty (120) days after the application for the registration
was filed.
(b)
The Attorney General may deny a request for an administrative hearing
under this subsection if the request is not in writing or is submitted later
than thirty (30) days following either:
1.
The Attorney General's mailing, by certified means, of written notice
to the applicant that the application has been denied which states in
substance the Attorney General's findings supporting the denial of the
application; or
2.
The expiration of the one hundred twenty (120) day period following
the date the application for registration was filed.
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
(1)
The Attorney General may revoke, suspend, or refuse to renew the registration of
a pre-settlement funding provider if:
(a)
The provider has violated any provision of Sections 1 to 8 of this Act or any
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administrative regulations promulgated by the Attorney General pursuant
to Sections 1 to 8 of this Act;
(b)
The provider or any of the provider's principal officers have refused or
failed, after notice, to produce any records or disclose any information
required pursuant to Sections 1 to 8 of this Act or any administrative
regulations promulgated by the Attorney General pursuant to Sections 1 to
8 of this Act; or
(c)
The provider has made a material false statement in an application,
statement, or report required to be filed under Section 3 of this Act.
(2)
The Attorney General shall not revoke, suspend, or fail to renew a registration
unless the registrant is afforded an opportunity for a hearing conducted in
accordance with KRS Chapter 13B. Any party to a hearing who is aggrieved by
the final order may seek judicial review by filing an appeal in the Franklin
Circuit Court in accordance with KRS Chapter 13B.
(3)
In lieu of the administrative hearing required by subsection (2) of this section,
the Attorney General may bring a civil action directly in the Franklin Circuit
Court or in the Circuit Court of any county in which the pre-settlement funding
provider is doing business to revoke or suspend the registration for any of the
grounds set forth in subsection (1) of this section.
(4)
In any action brought by the Attorney General under Sections 1 to 8 of this Act in
which the Commonwealth has substantially prevailed, the court shall award, in
addition to the relief provided elsewhere in Sections 1 to 8 of this Act, reasonable
attorney's fees, investigative costs, and litigation costs, including expert witness
fees and expenses.
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SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
(1)
The Attorney General shall maintain a public listing of all pre-settlement funding
providers who have been registered under Sections 1 to 8 of this Act.
(2)
(a)
Any violation of Sections 1 to 8 of this Act, including a violation of any of
the required contractual provisions of Section 2 of this Act, shall be an
unfair, false, misleading, and deceptive act or practice in the conduct of
trade or commerce in violation of KRS 367.170.
(b)
A willful violation of Sections 1 to 8 of this Act shall be punishable by a civil
penalty in an amount not to exceed ten thousand dollars ($10,000) per
violation.
(c)
All of the remedies, powers, and duties provided for in KRS 367.190 to
367.300 shall apply to acts and practices declared unlawful in Sections 1 to
8 of this Act.
(d)
Nothing in Sections 1 to 8 of this Act shall be construed to restrict the
exercise of powers or the performance of the duties of the Attorney General,
which he or she is authorized to exercise or perform by law.
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
(1)
The contingent right to receive an amount of the potential proceeds of a legal
claim is assignable and that assignment is valid only for the purposes of
obtaining funding from a pre-settlement funding provider.
(2)
Nothing contained in Sections 1 to 8 of this Act shall be construed to cause any
pre-settlement funding transaction conforming to Sections 1 to 8 of this Act to be
deemed a loan or to be subject to any of the provisions governing loans contained
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in the Kentucky Revised Statutes.
(3)
Any attorney's fee, Medicare lien, Medicaid lien, health insurance provider lien,
or health insurance provider lien arising out of the underlying claim against the
consumer's legal claim shall take priority over any lien of the pre-settlement
funding provider.
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
A pre-settlement funding provider shall not:
(1)
Enter into a pre-settlement funding contract with a consumer unless the
consumer is represented by an attorney with regard to the legal claim for which
the provider intends to contract;
(2)
Pay or offer to pay commissions or referral fees to any attorney, law firm,
medical provider, chiropractor, or physical therapist or any of their employees for
referring a consumer to the pre-settlement funding provider;
(3)
Accept any commissions, referral fees, or rebates from an attorney, law firm,
medical provider, chiropractor, or physical therapist or any of their employees;
(4)
Advertise false or misleading information regarding their products or services;
(5)
Refer a client or potential client to a specific attorney, law firm, medical provider,
chiropractor, or physical therapist or any of their employees. However, if a client
needs legal representation, the provider may refer the client to a local or state bar
association referral service; or
(6)
Engage in any other unfair, false, misleading, or deceptive act or practice.
SECTION 0. A NEW SECTION OF KRS CHAPTER 367 IS CREATED TO
READ AS FOLLOWS:
Sections 1 to 8 of this Act shall be known and may be cited as the Kentucky Pre-
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settlement Funding Provider Act.
Section 0. Notwithstanding the prior approval requirement of subsection (1) of
Section 3 of this Act, a pre-settlement funding provider who registers with the Attorney
General between the effective date of this Act and August 1, 2011, may engage in the
business of pre-settlement funding while the provider's registration is awaiting approval
by the Attorney General. This temporary transitional provision shall not be construed to
waive any other provision of Sections 1 to 8 of this Act, which shall become effective and
govern all pre-settlement funding transactions as of the effective date of this Act.
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