AB743 - California Financing Law: lawsuit financiers.

Amended IN Assembly May 05, 2025 Amended IN Assembly March 24, 2025 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 743 Introduced by Assembly Member Michelle Rodriguez (Coauthor: Assembly Member Nguyen) February 18, 2025 An act to amend Sections 22007, 22101, 22101.5, 22102, 22103, 22104, 22106, 22107, 22109, 22112, 22151, 22152, 22153, 22156, 22157, 22159, 22162, 22502, 22753, and 22780 of, and to add Sections 22021, 22022, 22100.6, and 22780.2 to, the Financial Code, relating to financial institutions. LEGISLATIVE COUNSEL'S DIGEST AB 743, as amended, Michelle Rodriguez. California Financing Law: lawsuit financiers. The California Financing Law generally regulates the business of finance lenders and brokers and prohibits any person from engaging in those businesses without obtaining a license from the Commissioner of Financial Protection and Innovation. The law also imposes various requirements on licensees who offer or sell commercial loans, as defined. This bill would prohibit a person from engaging in the business of lawsuit financing, as defined, without obtaining a license from the commissioner. commissioner, and would generally regulate the business of lawsuit financiers, as specified. The bill would require a licensee who is a lawsuit financier, as defined, to maintain a surety bond, as prescribed. The bill would include lawsuit financing in the definition of “commercial loan.” The bill would make willful violations of the California Financing Law by a licensee who is a lawsuit financier subject to a civil penalty, as specified. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. The Legislature finds and declares: (a) According to a 2022 United States congressional Government Accountability Office report, the global lawsuit financing industry conducts multibillions of dollars in loans and investments in the United States alone. (b) Lawsuit financing threatens the ability of California consumers to recover award moneys to which they are entitled. (c) Many lawsuit financiers are hedge funds, sovereign wealth funds, and other financiers based outside of the United States, including in Russia and China. (d) A March 2024 Bloomberg Law investigation revealed that sanctioned Russian oligarchs have been using litigation funding to evade United States sanctions. (e) A subsidiary of the Russian conglomerate Alfa Group has funded lawsuits prior to and following sanctions imposed on three of its billionaire founders in the wake of the 2022 Ukraine invasion. (f) Another investigative report found that international gangs and the Russian mob have worked with third-party litigation financiers to arrange fraudulent lawsuits. (g) California has the fourth largest economy in the world. (h) Lawsuit financiers are an unregulated, shadow financial sector in California. (i) Licensing will help to ensure only financially responsible, law-abiding financiers can operate in California and prevent exploitative practices, market manipulation, and fraud. (j) It is in the best interests of consumers to authorize the Department of Financial Protection and Innovation to license and regulate lawsuit financiers. SEC. 2. Section 22007 of the Financial Code is amended to read: 22007. “Licensee” means any finance lender, broker, lawsuit financier, or program administrator who receives a license in accordance with this division. SEC. 3. Section 22021 is added to the Financial Code, to read: 22021. “Lawsuit financier” means a person engaged in lawsuit financing. SEC. 4. Section 22022 is added to the Financial Code, to read: 22022. “Lawsuit financing” means a transaction in which a person provides, with or without recourse, money, services, or anything else having value to any person in return for a contingent right to receive an amount out of the proceeds of any realized judgment, award, settlement, or verdict a person may receive on an underlying civil claim or action, or in return for interest, fees, or other consideration. SEC. 5. Section 22100.6 is added to the Financial Code, to read: 22100.6. (a) A person shall not engage in the business of lawsuit financing without obtaining a license from the commissioner. (b) The commissioner shall include lawsuit financing as an industry category on the licensee search page of the department’s internet website. SEC. 6. Section 22101 of the Financial Code is amended to read: 22101. (a) An application for a license as a finance lender, broker, lawsuit financier, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103. (b) Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5. (c) This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division. (d) For purposes of this section, “subsidiary corporation” means a corporation that is wholly owned by a licensee. (e) A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153. (f) Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner. (g) Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures. (h) For purposes of this section, the following terms have the following meanings: (1) “Electronic record” means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. “Electronic records” also includes, but is not limited to, all of the following: (A) An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority. (B) A financial statement, a report, or advertising. (C) An order, license, consent, or other authority. (D) A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority. (E) A proposed decision of a hearing officer and a decision of the commissioner. (F) The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record. (G) A release, newsletter, interpretive opinion, determination, or specific ruling. (H) Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive. (2) “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record. (i) The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal. (j) This section shall become operative on January 1, 2019. SEC. 7. Section 22101.5 of the Financial Code is amended to read: 22101.5. (a) The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, lawsuit financier, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on his or her their own recognizance pending trial or appeal. (b) When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner. (c) The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code. (d) The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a). (e) The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section. (f) Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice. (g) This section shall become operative on January 1, 2019. SEC. 8. Section 22102 of the Financial Code is amended to read: 22102. (a) A finance lender, broker, lawsuit financier, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry. (b) The licensee may engage in business at the new location 10 days after the date of submission of a branch office application. (c) (1) The commissioner shall approve or deny the person responsible for the lending activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application. (2) If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioner’s denial, submit a new application to the commissioner designating a different person responsible for the lending activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1). (d) A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner. (e) The commissioner may adopt regulations to implement the requirements of this section. (f) A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section. (g) This section shall become operative on January 1, 2019. SEC. 9. Section 22103 of the Financial Code is amended to read: 22103. (a) At the time of filing the application for a finance lender, broker, program administrator, lawsuit financier, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn. (b) This section shall become operative on January 1, 2019. SEC. 10. Section 22104 of the Financial Code is amended to read: 22104. (a) The applicant shall file with the application for a finance lender, broker, lawsuit financier, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times. (b) A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000). (c) A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000). (d) The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act. (e) This section shall become operative on January 1, 2019. SEC. 11. Section 22106 of the Financial Code is amended to read: 22106. (a) The finance lender, broker, lawsuit financier, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensee’s principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, or program administrator. (b) (1) An application fo [Text truncated for display. Full text available on Congress.gov.]