Lawsuit lending in Texas the topic of new proposed bill

Rep. Senfronia Thompson, D-Houston, filed a bill yesterday (2/13) that would regulate lawsuit lending in Texas.

House Bill 1254, dubbed the “Civil Justice Funding Act,” would add a new chapter to the Business & Commerce Code that would apply to transactions in which a “civil justice funding company” purchases from “a consumer” the assignment of, “a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award or verdict obtained in the consumer’s legal claim.”

Thompson, a Houston solo, and her legislative director, Brett Anderson, didn’t return a telephone message seeking comment before deadline.

The bill creates requirements for the contract between the company and consumer. Among other things, contract disclosures would indicate the company could not “participate in deciding” the settlement details, although it could seek information about a claim’s status from the consumer’s lawyer. The consumer and his lawyer would have to notify the company about a settlement or adjudication.

Contracts would have to disclose that any amounts due by the consumer, “shall be paid only from the proceeds of your legal claim,” and “only to the extent that there are available proceeds.”

Another provision in HB 1254 indicated that “an attorney’s lien related to the legal claim,” would take priority over the funding company’s lien.

The contract would be void unless the consumer’s lawyer included “a written acknowledgement” attesting that costs and charges had been disclosed to the consumer; the lawyer was being paid on a contingent basis under a written fee agreement; proceeds from the legal claim would be disbursed through the lawyer’s trust account; the lawyer is following the consumer’s instructions about the transaction; and that the lawyer hadn’t received a referral fee from the funding company.

The bill also lays out requirements for funding companies to apply and register with the Texas Department of Licensing and Regulation.

The bill would prohibit lending companies from paying lawyers, or firms or accepting payment from them; or referring potential customers to a lawyer or firm. The bill would also prohibit companies from making decisions, “relating to the conduct, settlement, or resolution of the underlying legal claim, the power of which must remain solely with the consumer and the attorney handling the legal claim.”

--Angela Morris