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Post date: June 28 2004

Groundbreaking Reforms Promised By Legal Cash Advance Firm

Attorney General Spitzer today announced a landmark agreement with a New Jersey finance company that will serve as a model to a burgeoning industry which provides financing to consumers with pending personal injury lawsuits.

"Although these financial arrangements provide funding to cash-strapped individuals with looming medical bills and housing expenses, consumers need to be vigilant when considering such offers," Spitzer said. "This agreement sends a message to this growing industry that law enforcement is closely monitoring their practices and will act against exploitative arrangements."

Cambridge Management Group, LLC provides cash advances to consumers - generally between $1,000 and $7,500 - in exchange for the right to receive a part of the proceeds of any judgment or settlement obtained by the consumer. The company often receives proceeds significantly in excess of its advance.

These cash advances for individuals with pending personal injury litigation are not considered "loans" under New York State law because there is no absolute obligation by a consumer to repay them. The contracts provide that, in the event the consumer receives no recovery from his/her claim, the consumer owes no money to the company making the cash advance.

To date, Cambridge has entered into over 500 transactions with New York consumers alone.

Spitzer's office was concerned that consumers did not fully understand the terms of the financing arrangement because the contracts were not clearly written and did not disclose all its terms. Additionally, contracts were written only in English even when the consumer was not fluent in English and the transaction was conducted in a language other than English.

Some of the reforms agreed to by Cambridge include:

  • Clear and conspicuous disclosure statement regarding the cash advance, including the total amount of the cash advance; an itemization of one-time fees such as application, processing, broker and attorney review fees; the annualized rate of return on the cash advance; and the total amount to be repaid, broken down in six month intervals, carried forward to 36 months;
  • A five-business-day right to cancel the contract without obligation or penalty;
  • A notarized acknowledgment by the consumer's attorney that the contract has been reviewed and explained to his/her client;
  • For English and Spanish speaking consumers, contracts written in the same language in which the oral negotiations were conducted. For consumers whose primary language is neither English or Spanish, a translation of the "principal terms" of the contract into their native language.

Also, Cambridge agreed to reform its contracts to conform with the state "plain language" law and to discontinue requiring mandatory arbitrations to resolve disputes.

Spitzer's office indicated that it is reaching out to other financing companies that provide these types of cash advances in an effort to extend the reforms industry-wide.

In settling the investigation, Cambridge paid $20,000 to the state in costs.

Individuals with complaints about personal injury litigation cash advances are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.

This case was handled by Special Assistant Attorney General Stephen Mindell and Assistant Attorney General Herbert Israel of the Consumer Frauds and Protection Bureau.