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Attorney General Eliot Spitzer Monday unveiled a first-in-the-nation agreement that requires a major player in the burgeoning “settlement advance” business to adopt a series of consumer protection measures. Cambridge Management Group will make far clearer disclosures of the terms of its cash advances under the terms of the agreement. It also agreed to pay New York $20,000 to cover costs in negotiating the deal. “We are hoping this will serve as a model and that we are able to enter into similar settlements with the rest of the industry,” said Thomas Conway, the attorney in charge of Spitzer’s Consumer Frauds and Protection Bureau. James N. Giordano, president of Cambridge Management Group, said his firm entered into the agreement because it is eager for some guidance on how to conduct a newly emerging business. He stressed that there was litigation against his firm and the deal is an “agreement” rather than a legal “settlement.” “We actually welcome it and are very happy with the agreement,” Giordano said, adding that there are now between 20 and 30 companies in New York offering litigation advances. “The industry is new and we wanted guidance. I think Attorney General Spitzer’s Office stepped up in a big way and gave us the guidance we needed on how to conduct our business in the future.” Cambridge Management Group is one of a growing number of financing firms that offer cash advances to personal injury clients. The advances, which generally range from $1,000 to $7,500, are offered in return for a lien against the cash proceeds of a settlement or judgment. Financing companies recover the advance only if the client ultimately prevails, but the terms of those agreement can make the offers extremely profitable. Typically, cash advance companies charge an interest rate of up to 5 percent monthly while the lawsuit is pending. So, if a consumer takes a $5,000 advance and the personal injury action settles a year later, the financing firm gets back the initial $5,000 plus 5 percent, compounded, for each month, plus processing fees. That adds up to a one-year return of more than 60 percent on the investment. However, if there is no settlement or award, the company forfeits the advance. “It is non-recourse, so if they do lose the case — which, by the way, we have quite a few of — we lose the money,” Giordano said. Cambridge Management Group is a particularly aggressive marketer of cash advances, with solicitations to lawyers and ads on cable television and in subways. Proponents say the advances alleviate the pressure on injured and often out-of-work plaintiffs to settle cheap. With an advance, a plaintiff is often able to make ends meet until a case is resolved and is less inclined to settle for less than a suit is worth. Critics say just the opposite occurs since the interest on the advance continues to accrue for however long the case is pending, creating an incentive to get it over with quickly. In either case, Spitzer said consumers “need to be vigilant when considering such offers” and should know exactly what they are getting into before binding themselves to “exploitive arrangements.” His office began an investigation after noticing a subway ad. It later receiving a single complaint from a customer. Conway said the transactions do not constitute loans because there is no absolute commitment to repay. Unless the client collects a settlement, he or she is under no obligation to return the advance. Consequently, he said, New York’s laws on loans are inapplicable. The attorney general, however, found some legal muscle in the state’s disclosure requirements, and invoked those consumer protections to forge an agreement with Cambridge. TERMS OF AGREEMENT Under the agreement, which takes effect in 90 days, the company must: � Disclose the total amount of the advance, including the rate of return and frequency of compounding; � Provide consumers with a five-day right-to-cancel provision; � Obtain a notarized acknowledgment from the client’s attorney that he or she has reviewed the contract and explained its implications to the consumer. “At least now everything will be fully disclosed,” Conway said. Settlement advances have become so commonplace in recent years that ethics boards in more than half the states have weighed in on the obligations and restrictions of attorneys who may become involved in those transactions. The New York State Bar Association’s Committee on Professional Ethics has issued an opinion stating that lawyers may refer clients to companies like Cambridge, so long as they do not have a financial interest. Lawyers in New York are barred under Disciplinary Rule 5-103 from advancing litigation expenses to clients when repayment is contingent on the outcome. Attorneys in some other states, however, are not similarly restrained and may hold an interest in a lending institution which loans money to his or her personal injury clients. The matter was handled by Special Assistant Attorney General Stephen E. Mindell and Assistant Attorney General Herbert J. Israel of the Consumer Frauds and Protection Bureau. Cambridge was represented by Eric A. Tirschwell, special counsel to Kramer, Levin, Naftalis & Frankel in Manhattan.

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