N.Y. Financial Services Law § 1002: Contract requirements; right of rescission

§ 1002. Contract requirements; right of rescission. (a) All litigation

funding contracts shall meet the following requirements:

(i) a contract shall be written in a clear and coherent manner using

words with common, everyday meanings to enable the average consumer who

makes a reasonable effort under ordinary circumstances to read and

understand the terms of the contract without having to obtain the

assistance of a professional;

(ii) the contract shall be completely filled in when presented to the

consumer for signature;

(iii) the contract shall contain, in twelve point bold type font, a

right of rescission, allowing the consumer to cancel the contract

without penalty or further obligation if, within ten business days after

the funding date, the consumer returns to the litigation funding company

the full amount of the funded amount;

(iv) the contract shall contain a space for the consumer to initial

each page;

(v) a statement that there is nothing to be paid by the consumer other

than the charges that are disclosed in the contract;

(vi) in the event the consumer seeks more than one litigation funding

contract from the same company, a disclosure providing the cumulative

amount due from the consumer for all transactions under all contracts,

provided that a litigation funding company may not obtain an interest

that, in aggregate, would result in charges that exceed the funded

amount plus twenty-five percent of the gross proceeds of the consumer's

legal claim;

(vii) a statement of the maximum charges the consumer may be obligated

to pay under the contract;

(viii) a statement that a consumer may be liable for a breach of

contract claim if they materially breach a contract or engage in fraud

or material misrepresentation relating to a contract; and

(ix) a clear explanation of how and when the consumer is obligated to

pay the charges to the litigation funding company, including an

explanation of the consumer's payment obligations if the proceeds of the

legal claim will be paid to the consumer over time.

(b) The contract shall contain a written acknowledgement by the

attorney retained by the consumer in the legal claim that attests to the

following:

(i) the attorney has reviewed the mandatory disclosures in section one

thousand five of this article with the consumer;

(ii) the attorney is being paid on a contingency basis pursuant to a

written fee agreement;

(iii) all proceeds of the legal claim will be disbursed via either the

trust account of the attorney or a settlement fund established to

receive the proceeds of the legal claim on behalf of the consumer;

(iv) the attorney is obligated to take all reasonable steps to

disburse funds from the legal claim and to ensure that the terms of the

litigation funding contract are fulfilled;

(v) the attorney has not received a referral fee or other

consideration from the litigation funding company in connection with the

litigation funding, nor will the attorney receive such fee or other

consideration in the future; and

(vi) the attorney in the legal claim has provided no tax, public or

private benefit planning, or financial advice regarding this

transaction.

(c) In the event that the acknowledgement required pursuant to

paragraph (iii) of subsection (b) of this section is not completed by

the attorney or firm retained by the consumer in the legal claim, the

contract shall be null and void. The contract shall remain valid and

enforceable in the event the consumer terminates the initial attorney

and/or retains a new attorney with respect to the legal claim.

(d) Notwithstanding paragraph b of subdivision three of section 5-501

of the general obligations law, no prepayment penalties or fees shall be

charged or collected on consumer litigation funding. A prepayment

penalty on a litigation funding contract shall be unenforceable.