A new Vermont law introduces changes to the legal requirements for consumer litigation funding companies in the state. These companies will now need to get licensed and post a surety bond in order to operate legally.
Vermont House Bill 84, which took effect on July 1st, poses stricter regulations on consumer litigation funding companies. The purpose of the new legislation is to provide clear rules for this service area and to protect the interests of consumers. The same bill also stipulates tighter consumer protection rules for mortgage brokers in Vermont.
The move to stricter regulation of consumer litigation funding comes after a period of tighter observation of the industry in the last several years. As consumer litigation companies provide financing to people who are undergoing a legal claim or civil action, the state bodies deem it necessary to ensure proper compensation to consumers in case the funding company breaks the applicable consumer protection laws. The lawmakers believe that new rules will set the stage for a more secure environment for consumers using the services of such companies.
What House Bill 84 entails
The most important change for Vermont litigation funding companies is that they need to get licensed in order to operate in the state. They are also obliged to give their customers a certain type of information and to report on their business in the state on an annual basis.
Additionally, as part of the registration, funding companies are required to post a surety bond or a letter of credit if they want to operate in the state. The security should be either twice the amount of the largest fund they have provided in a period of three years, or $50,000, whichever is greater.
The new licensing requirements in detail
Vermont litigation funding companies now need to get licensed with the Vermont Department of Financial Regulation.
The main requirements for getting the right to work in the state include posting a security in the form of a surety bond or a letter of credit, paying the licensing fee of $600 for a three year license, providing tax certification and having a registered agent recorded with the Vermont Secretary of State. The licensing is done via the Nationwide Multistate Licensing System & Registry (NMLS).
Obtaining the surety bond is one of the main financial factors in getting licensed. While the bond amount may seem considerable – $50,000 – in fact, consumer litigation funding companies do not need to cover the whole sum to get bonded. The surety bond price is a fraction of the bonding amount. The premium is based on the financial stability of the company, such as credit score, assets and liquidity and overall finances.
The purpose of the new rules
While the new requirements for Vermont consumer litigation funding companies entail more administrative and financial steps that need to be satisfied, the bill is meant to bring a positive change in the industry.
Since such funding companies typically offer funding to injured claimants during lawsuits in return for a percentage of the compensation they would receive, it is important that the interests of consumers are safeguarded. The new requirements for licensing and bonding aim to minimize any potential damage to the customers of the funding companies in case their rights are breached. The bill is expected to eliminate fraudulent practices in the industry, thus improving the image of consumer litigation funding companies.
Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping business owners get bonded and start their business.
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