Memorandum - Consumer Finance Monitor

Case 1:17-cv-00890-LAP Document 56 Filed 08/15/17 Page 1 of 15

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

CONSUMER FINANCIAL PROTECTION BUREAU and THE PEOPLE OF THE STATE OF NEW YORK, by ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL FOR THE STATE OF NEW YORK,

Plaintiffs, v.

Case No. 1:17-cv-00890-LAP

RD LEGAL FUNDING, LLC; RD LEGAL FINANCE, LLC; RD LEGAL FUNDING PARTNERS, LP; and RONI DERSOVITZ,

Defendants.

MEMORANDUM OF LAW OF AMICUS CURIAE AMERICAN LEGAL FINANCE ASSOCIATION IN SUPPORT OF PLAINTIFF CONSUMER FINANCIAL PROTECTION BUREAU

PILLSBURY WINTHROP SHAW PITTMAN LLP Carolina A. Fornos 1540 Broadway New York, NY 10036 (212) 858-1000

Mercedes K. Tunstall 1200 Seventeenth Street NW Washington, DC 20036 (202) 663-8118

Counsel for the American Legal Finance Association, Inc.

Case 1:17-cv-00890-LAP Document 56 Filed 08/15/17 Page 2 of 15 Table of Contents Page

PRELIMINARY STATEMENT AND INTEREST OF AMICUS CURIAE ...................................1 ARGUMENT ...................................................................................................................................4

I. Pre-Settlement Legal Funding Transactions Are Non-Recourse and Are Not Loans Because Repayment is Contingent, Not Absolute. ............................................4

II. ALFA's Model Contract and Code of Conduct Are Designed to Protect Consumers Against the Harms Alleged in the Instant Case. ...............................................8 a. ALFA's model contract promotes understanding with familiar language and a consumer-friendly format. ....................................................................9 b. ALFA members commit to the highest level of ethical and professional conduct by opting in to the ALFA Code of Conduct...................................................10

CONCLUSION ..............................................................................................................................11

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Case 1:17-cv-00890-LAP Document 56 Filed 08/15/17 Page 3 of 15

Table of Authorities Page(s)

Cases Clever Ideas, Inc. v. 999 Restaurant Corp.,

No. 0602302/2006, 2007 N.Y. Misc. LEXIS 9248 (N.Y. Sup. Oct. 26, 2007) .................7, 8, 9 Colonial Funding Network, Inc. for TVT Capital, LLC v. Epazz, Inc.,

16 Civ. 5948 (LLS), 2017 WL 1944125 (S.D.N.Y. May 9, 2017) ....................................4, 5, 8 In re Dryden Advisory Grp., LLC,

534 B.R. 612 (Bankr. M.D. Pa. 2015) .......................................................................................7 Kelly, Grossman & Flanagan, LLP v. Quick Cash, Inc.,

950 N.Y.S.2d 723 (N.Y. Sup. Ct. 2012) ....................................................................................4 Lynx Strategies, LLC v. Ferreira,

957 N.Y.S.2d 636 (N.Y. Sup. Ct. 2010) ................................................................................4, 7 O'Farrell v. Martin,

292 N.Y.S. 581 (City Ct. 1936) .................................................................................................5 Platinum Rapid Funding Grp. Ltd. v. VIP Limousine Serves., Inc.,

No. 604163-15, 2016 WL 6603853 (N.Y Sup. Ct. Oct. 27, 2016) ............................................4 Prof'l Merch. Advance Capital, LLC v. Your Trading Room, LLC,

No. 174692012, 2012 WL 12284924 (N.Y. Sup. Ct. Nov. 28, 2012) .......................................4 Rubenstein v. Small,

75 N.Y.S.2d 483 (N.Y. Sup. Ct. 1947) ......................................................................................4 Singer Asset Finance Co., L.L.C. v. Bachus,

741 N.Y.S.2d 618 (N.Y. App. Div. 2002) .................................................................................4 Transmedia Rest. Co., Inc. v. 33 E. 61st St. Rest. Corp.,

710 N.Y.S.2d 756 (N.Y. Sup. Ct. 2000) ................................................................................7, 8 Statutes and Codes

United States Code Title 15, Sections 1601?1667f ...................................................................................................6

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Case 1:17-cv-00890-LAP Document 56 Filed 08/15/17 Page 4 of 15 Rules and Regulations

Code of Federal Regulations Title 12, Section 1026 app. H-2 ...............................................................................................10 Title 12, Section 1026.1(b) ........................................................................................................6 Title 12, Section 1026.2(a)(14) ............................................................................................6, 10 Other Authorities

American Legal Finance Association.The Alfa Code of Conduct, at (last visited August 10, 2017)........................................................................................................................3

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Case 1:17-cv-00890-LAP Document 56 Filed 08/15/17 Page 5 of 15

PRELIMINARY STATEMENT AND INTEREST OF AMICUS CURIAE The American Legal Finance Association, Inc. ("ALFA") respectfully submits this memorandum of law as amicus curiae in support of The Consumer Financial Protection Bureau ("CFPB") to address the "non-recourse" nature of legal funding transactions (which occur presettlement) as contrasted to the transactions at issue in the instant case (which occur postsettlement). Further, ALFA explains how the ALFA Code of Conduct and model contract protect consumers against the harms that have been alleged in this case. The CFPB and the New York State Attorney General (collectively, "Plaintiffs") brought the instant action against RD Legal Funding, LLC, RD Legal Finance, LLC, RD Legal Funding Partners, LP, and Roni Dersovitz (collectively, "Defendants") alleging, among other things, violations of federal and state laws prohibiting unfair, deceptive, and abusive acts and practices. The transactions at issue in the instant action involve a lump sum payment to a consumer in exchange for the consumer's interest in proceeds the consumer expects to receive from an already existing legal settlement or judgment. Among other things, Plaintiffs allege Defendants have (1) mischaracterized these transactions as sales, as opposed to loans, therefore materially interfering with consumers' ability to understand the terms and costs of the transactions, and (2) taken advantage of the confusion consumers experience due to the mischaracterization of these transactions in a manner that prevents these consumers from being able to protect their own interests. ALFA, as amicus curiae, is the trade association that represents the country's leading consumer legal funding companies, which does not include Defendants. 1 ALFA members

1 ALFA member companies include: LH Funding; PS Finance; Magnolia Legal Funding; Necessity Funding; US Claims; Plaintiff Support; Prospect Funding Partners; Lawyers

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