Pub. 10 2019 Issue 3

www.wvbankers.org 22 West Virginia Banker D uring its 2019 regular session, the West Virginia Legislature once again reviewed the West Virginia Consumer Credit and Protection Act and determined additional changes were necessary. The Act, one of the pri- mary statutes governing consumer loans, leases, credit sales, and other transactions in the state, has served as a basis for lawsuits by consumers against banks and other financial insti- tutions since its 1974 enactment. This time, the Legislature amended the Act to create a new article, Article 6N. Effective June 5, 2019, it regulates and imposes restrictions on “litigation financiers” and “litigation financing contracts.” The Multi-Billion Dollar Global Industry Litigation funding started in the mid-1990s in the United Kingdom and Australia. It moved into the United States in the mid-2000s. According to the U.S. Chamber’s Institute for Legal Reform, third-party litigation funding “is a global industry with approximately $100 billion available to funders and firms.” Litigation funding involves third-party funding of legal cases. Companies provide financing for litigants – usually plaintiffs – allowing them to prosecute their lawsuits. In exchange, the litigation funding company gets a percentage of any judgment or settlement the litigant obtains. According to the American Bar Associ- ation’s ABA Journal, advocates of litigation funding argue it “levels the litigation playing field, benefits companies and firms by allowing them to free up capital for core business purposes, and reduces the risks for firms and their clients to settle for less than what their cases are worth.” On the other hand, critics argue it “encourages the filing of frivolous suits, and gives plaintiffs’ attorneys an unfair advantage in settlement talks.” They also argue litigation funding inserts an outside party into the litigation who might try to exert control. Indeed, according to the U.S. Chamber’s Institute for Legal Reform, an executive at one of the world’s largest litigation funding companies admitted they “make it harder and more expensive to settle cases.” The Act’s Regulation of the Industry Against this backdrop, the West Virginia Legislature felt it necessary to regulate the practice of litigation funding. The new article is limited to “consumer” litigation fund- ing, and “consumer” is defined as “any natural person who resides, is present, or is domiciled in this state.” Accordingly, this new article does not appear to apply if the litigation fund- ing is provided to an entity, such as a corporation. The new article regulates “litigation financiers,” defined as any person, entity, or partnership engaged in “liti- gation financing.” Litigation financing is defined as a nonrecourse transaction in which financing is provided to a consumer in return for a consumer’s assigning to the lit- igation 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. It should be noted that the Legislature included an express exception from the definition of litigation financing for legal costs advanced by the consumer’s attorney. WV Legislature Amends Consumer Protection Statute to Regulate and Impose Restrictions on Litigation Financiers By Nicholas P. Mooney II, Spilman Thomas & Battle, PLLC