RELATING TO COMMERCIAL LAW -- GENERAL REGULATORY PROVISIONS --, THIRD-PARTY LITIGATION FINANCING CONSUMER PROTECTION ACT
S2494 creates the “Third-Party Litigation Financing Consumer Protection Act” and adds a new chapter to Rhode Island’s commercial law governing litigation financing. The bill defines litigation financing broadly as funding provided by a third party, other than the parties, their counsel, or certain insurers/indemnitors, in exchange for a contingent right to a share of lawsuit proceeds or other compensation tied to the case. It expressly excludes ordinary contingency-fee legal representation and legal costs advanced by counsel under professional conduct rules.
The bill requires litigation financers operating in Rhode Island to register with the Department of Business Regulation, maintain a public registration record, and post a surety bond of at least $50,000. It also imposes annual reporting requirements, including ownership information and transaction data, and directs the DBR director to issue reports to the House and Senate Judiciary Committees and a public version with personal information removed. The director is given rulemaking and enforcement authority, and any violation of the chapter or implementing regulations would make the financing contract unenforceable against the consumer.
The act also sets substantive consumer protections and disclosure rules. Litigation financers would be barred from paying referral fees to lawyers or medical providers, steering consumers to particular lawyers or providers, giving legal advice, controlling litigation decisions, reporting consumers to credit bureaus for shortfalls, or using contract terms that waive jury trial or remedies. Contracts must be written, fully completed, and include prominent disclosures about cancellation rights, fees, the financer’s lack of control over the case, and the consumer’s potential obligation limits. If the consumer has counsel, the lawyer must acknowledge the absence of referral payments; if the lawyer has a financing relationship, that agreement must be shared with the consumer.
The bill’s impact on state law would be to create a new regulatory framework for a largely unregulated industry in Rhode Island, shifting oversight to DBR and adding disclosure, reporting, and bonding requirements for financers. It also expands discovery obligations by requiring disclosure of financing agreements in litigation and making the existence of litigation financing a permissible discovery topic in personal injury matters. The law would apply to class actions and would require courts and putative class members to be informed if class counsel has a financial or legal relationship with a financer, while exempting commercial litigation financing from most of the chapter’s requirements.
The general sentiment reflected in the available history is cautious but favorable toward oversight, with the Senate Judiciary Committee voting 9-0 to hold the bill for further study rather than advancing it immediately. That suggests broad interest in the topic but a desire for more review before enactment. The main points of contention are likely to be the scope of disclosure, the burden of registration and reporting on financers, the treatment of attorney relationships and class actions, and whether the bill goes far enough—or too far—in regulating a financing practice that supporters may view as a consumer protection issue and critics may view as a restriction on access to capital or litigation funding.
The bill would amend Title 6 of the Rhode Island General Laws by adding a new chapter regulating third-party litigation financing and assigning oversight to the Department of Business Regulation. It would require registration, bonding, disclosures, annual reporting, and compliance with conduct restrictions, while making violations render financing contracts unenforceable. It also affects litigation practice by mandating disclosure of financing arrangements in civil cases, including personal injury matters and class actions, and by exempting commercial litigation financing from the chapter’s coverage.
The available vote history shows the Senate Judiciary Committee voted unanimously 9-0 to hold the bill for further study, indicating no recorded opposition at that stage but also no immediate endorsement for passage. Overall, the bill appears to have been received as a serious consumer-protection and transparency measure, with the committee taking a measured approach and leaving room for additional review. No committee transcript is available, so the record does not show detailed debate or public testimony in the materials provided.
Likely areas of contention include whether litigation financing should be treated as a consumer-protection issue or a legitimate financial product, how much disclosure should be required, and whether the $50,000 bond and annual reporting obligations are appropriate. The bill’s restrictions on referral fees, attorney-financer relationships, and control over litigation decisions may draw scrutiny from financers and some legal practitioners, while consumer advocates may support those limits as safeguards against conflicts of interest. The class-action disclosure provisions and the broad discovery rules for personal injury cases may also be debated as potentially burdensome or intrusive.