Pub. 10 2019 Issue 3

Summer 2019 23 West Virginia Banker As stated, the new article may prevent plaintiffs from receiving funding that would allow them to file or continue a lawsuit. Article 6N regulates both litigation financiers and litigation financing contracts. Requirements for financiers include the following: • Financiers are required to become registered as active and in good standing with the West Virginia Secre- tary of State; • They must post a surety bond with the Secretary of State and approved by the Office of the West Virginia At- torney General in an amount not less than $50,000; • They are prohibited from paying to or receiving from the consumer’s attorney any commission, referral fee, rebate, or other compensation; • They are prohibited from assigning a litigation financing contract (with certain exceptions); and • They 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. Requirements for contracts include the following: • The transaction must be set forth in a written contract “that is completely filled in with no incomplete sections when the contact is offered or pre- sented to the consumer”; • The contract must include certain dis- closures set forth in the new article in at least 14-point, bold font placed clearly and conspicuously within the contract; • Regarding certain disclosures required in the contract, the new article sets forth the language that must be Nicholas P. Mooney II is a Member attorney in Spilman Thomas & Battle’s Charleston, West Virginia office. His primary area of practice is consumer financial services litigation in federal and state courts. He has devoted all of his time for the past 19 years to that practice area. He can be reached at 304.340.3860 or nmooney@spilmanlaw.com. included in the contract and where it must appear in relation to the consum- er’s signature line; The contract must contain a right of rescission; • The contract must not charge an an- nual fee of more than 18 percent of the original amount of the money provid- ed to the consumer with an additional limitation if the consumer enters into more than one contract per year; • The contract must not compound fees more often than semiannually; • The contract must contain a written acknowledgment by the consumer’s attorney (if the consumer is repre- sented) of certain facts, including that the attorney is not receiving a fee or compensation for referring the consumer to the financier; and • The contract is prohibited from con- taining a mandatory arbitration clause. If the requirements are not followed, the consequences can be steep. Any violation shall render the contract unenforceable by the financier, any successor-in-interest, or the con- sumer. Further, if the consumer and financier litigate the enforceability of the contract, the defendant may be responsible for paying the plaintiff’s attorney’s fees. The Immediate Effect of the New Article The enactment of the new article did not go unnoticed. Litigation Finance Journal characterized it as “impos[ing] strict regulation on consumer legal funders, which will essentially prevent the funding industry from operating in the state.” The Alliance for Re- sponsible Consumer Legal Funding, a litigation funding trade group, char- acterized the new article as “capp[ing] interest rates so low that funders have mostly stopped doing business in [West Virginia].” As stated, the new article may prevent plaintiffs from receiving funding that would allow them to file or continue a lawsuit. It is too early to determine whether Article 6N will have any appreciable effect on the number of lawsuits filed against banks or other financial institutions under the Act. However, if a litigation financier provides funding for a plaintiff to sue a bank, at least that fact will not be hidden. The new article requires the consumer to disclose the existence of a funding transaction and produce a copy of the contract without waiting for the defendant to request it. 