Key Takeaways on Vermont Legal Funding Legislation

1. All companies engaged in litigation financing must be licensed by the Vermont Department of Financial Regulation and pay a $600 registration fee.
2. You must register for a license if you either fund lawsuits filed in Vermont or fund a Vermont resident with a suit filed in a different state.
3. Companies must file proof of financial stability, either through a surety bond or a guaranteed letter of credit for $50,000 (or double the company’s largest funded amount in the state during the previous three calendar years, whichever is greater).
4. All litigation funding contracts must include certain provisions and a list of disclosures to the consumer.
5. There is currently no limit on the fees a company can charge.
6. An annual report must be filed before April 1 of each year.

Understanding Vermont Legal Funding Requirements

Vermont is unique in New England as it does not border the Atlantic Ocean and is one of only a few states that regulate the litigation financing industry. If you’re planning to provide litigation financing in Vermont, there are certain requirements that you must comply with, effective since July 1, 2016.

By following the rules outlined below, you can ensure compliant funding practices in Vermont. However, funders are always encouraged to review the full text of new regulations before proceeding to ensure complete understanding.

Licensing Requirements

Vermont House Bill 84 defines Consumer Litigation Funding as “a nonrecourse transaction in which a company purchases and a consumer assigns to the company a contingent right to receive an amount of the potential net proceeds of a settlement or judgment obtained from the consumer’s legal claim.” Essentially, this means that litigation financing is not considered a loan, as repayment is only made if the consumer recovers funds from their claim.

Unlike other states, Vermont requires registration with its Department of Financial Regulation regardless of the amount of business conducted in the state. Licenses are issued by the Commissioner of the Department of Financial Regulation and are obtained through the Nationwide Multistate Licensing System & Registry. A $600 annual registration fee and a surety bond or guaranteed letter of credit are required.

Additionally, the statute defines a “consumer” as a natural person seeking or obtaining litigation funding for a pending claim. This includes:

1. Claims filed in Vermont,
2. Individuals residing or domiciled in Vermont, or
3. Both of the above.

Thus, funders must be licensed to finance any case involving a Vermont resident or any lawsuit filed in Vermont.

Disclosure and Contract Requirements

The Vermont statute Section 2253 mandates the following disclosures on the front page of the funding agreement:

1. A description of possible alternatives to litigation funding, such as secured or unsecured personal loans and life insurance policies.
2. Notification that some or all of the funded amount may be taxable.
3. A description of the consumer’s right of rescission.
4. The total amount provided to the consumer under the contract.
5. An itemization of charges.
6. The annual percentage rate of return.
7. The total amount due, including charges, if repayment occurs after the contract is executed.
8. A statement confirming that there are no other fees or charges apart from those disclosed.
9. Disclosure of cumulative amounts due if the consumer has multiple funding contracts.
10. A statement that the company has no right to influence the legal claim’s conduct, settlement, or resolution, and those decisions remain solely with the consumer and their attorney.
11. A statement that, if no recovery is made, the consumer owes nothing, and if recovery is insufficient, the consumer owes no more than the net proceeds.

The statute also requires certain provisions within the contract, including definitions of key terms, a clear right of rescission, and specification of venue for litigation involving the contract. Importantly, the contract must be written in plain, everyday language to ensure that the average consumer can understand it without needing professional assistance.

Fee Limitations

Currently, there is no statutory limit on the fees that a litigation financing company can charge. However, the statute does indicate that the Commissioner and Attorney General will report to the General Assembly on the status of consumer litigation funding in Vermont and provide recommendations, potentially including fee limitations. Monitoring the Commissioner’s website for any updates is advised.

Annual Reporting Requirements

Funders investing in lawsuits in Vermont or financing plaintiffs residing in Vermont must file an annual report with the Commissioner’s office by April 1. This report must include:

1. The number of contracts entered into.
2. The dollar value of funded amounts.
3. The dollar value of charges under each contract, including the annual rate of return.
4. The dollar amount and number of litigation funding transactions with full realization.
5. The dollar amount and number of litigation funding transactions with less-than-expected realization.

The report must be notarized, as it is required to be filed “under oath.”

Conclusion

This guide provides the essential information needed to ensure compliance with Vermont’s litigation funding requirements. Be sure to review the relevant statutes in full for additional details before proceeding with funding activities.

If you have any questions, thoughts, or feel we missed anything, please let us know in the comments below.

Legislation Reference: Vermont House Bill 84 – Status and Text

Commissioner’s Website for Updates

Archived Legislation Text