California Financing Law: lawsuit financiers.

Assembly Member Michelle Rodriguez's legislation to regulate California's lawsuit financing industry would require entities providing litigation funding to obtain state licenses and meet new financial oversight requirements. The bill defines lawsuit financing as transactions where entities provide funds or services in exchange for contingent rights to litigation proceeds, bringing these activities under the California Financing Law's regulatory framework.

The measure establishes specific requirements for lawsuit financiers, including maintaining a minimum $250,000 surety bond - significantly higher than the $25,000 bond required of other licensees. Applicants must submit to criminal background checks, maintain detailed business records, and file annual reports with the Department of Financial Protection and Innovation. The department would list licensed lawsuit financiers on its website and oversee their compliance with state regulations.

The legislation creates enforcement mechanisms through civil penalties, with fines up to $100,000 for first violations and $250,000 for subsequent infractions. These penalties exceed the general $10,000 fine for other California Financing Law violations. The bill classifies lawsuit financing as commercial lending, subjecting these transactions to existing commercial loan regulations while maintaining distinct requirements for litigation funders.

According to the bill's findings, this regulatory framework responds to investigations revealing that some international entities, including sanctioned individuals, have used lawsuit financing to evade U.S. restrictions or perpetrate fraud. The measure aims to ensure that only financially responsible, law-abiding entities can provide litigation funding in California, which has the world's fourth-largest economy.