Here at Edward Stone Law, we get phone calls every day from people who feel they have been taken advantage of by factoring companies when selling their structured settlement payments.

One of the most common things we hear is that sellers have been told it is legal to go to another state and sell their payments. The courts in some states, like New York, Maryland, and Pennsylvania look very carefully at transfer petitions. Factoring companies don’t like this because they make a big profit when they buy a seller’s payments.

This practice of a factoring company moving a seller from one state to another in order to buy their structured settlement payments is called “forum shopping.” Factoring companies are telling sellers it is legal to do this.  It is not.  The transfer petition must be brought in a court in the state in which the seller lives or is domiciled.

Every state except New Hampshire has a Structured Settlement Protection Act that sets forth the requirements a factoring company must follow in filing a transfer petition. The factoring company must comply with those laws, and a Federal statute, 26 U.S.C. Section 5891.  Section 5891 imposes an excise tax on a factoring transaction that does not qualify for exemption under the conditions specified in Section 5891(b).

If you are a seller who was victimized by a factoring company that filed a transfer petition in a state that you did not reside in, please contact Edward Stone Law by email at eddie@edwardstonelaw.com or by phone at (203) 504-8425.

Forum shopping in the transfer of structured settlement payment rights transfer is not legal.

26 U.S.C. Section 5891 imposes a 40% excise tax on any structured settlement transfer that does not qualify for one of the exemptions set forth in Section 5891(b).

In order to qualify for one of the exemptions, a transfer petition must be brought in the state that the seller is domiciled in, if that state has a Structured Settlement Protection Act.  The only state that does not have a Structured Settlement Protection Act is New Hampshire.

The Internal Revenue Service has published an “Excise Tax on Structured Settlement Factoring Transactions Audit Technique Guide” that states “Structured settlement factoring companies may sometimes be trying to avoid an unfavorable SSPA or an unfavorable forum in the payee’s home state. For example, if a factoring company seeks to acquire structured settlement payment rights from a payee domiciled in North Carolina (which limits the discounts and fees that factoring companies can charge), the factoring company may seek to have its transaction approved under the SSPA, and in the courts, of another state. If that occurs, the resulting order is not a qualified order for purposes of section 5891(b), and the factoring company is liable for the excise tax. ”

If you are a seller who was victimized by a factoring company that filed a transfer petition in a state that you did not reside in, please contact Edward Stone Law by email at eddie@edwardstonelaw.com or by phone at (203) 504-8425.

Louisiana’s Structured Settlement Protection Act (SSPA) was just revised, adding some additional provisions which may help curb some of the factoring industry abuses.  Unfortunately, some of the new provisions are designed to protect the factoring companies, and not those selling their structured settlement payments.  The new legislation, which goes into effect on July 1, 2020 provides that (1) factoring companies register with the secretary of state, be qualified to do business in Louisiana, and post a $50,000 bond; (2) any petition must be brought in the parish (county) where the seller resides; and (3) the seller receive independent professional advice.  But judicial oversight of structured settlement transfers is crucial, and the revised statute does not set forth any specific criteria that must be considered by the judiciary before approving a transfer of structured settlement periodic payments.  Our warnings to all sellers still apply:  BE CAREFUL!  The factoring companies (and their sales reps) are not your friends.  They want you to sell so that they can earn a commission.  Most of the “deals” they offer you are no deal at all.

Ruling in a case in mid-December, 2018, the Kentucky Supreme Court held that the Kentucky Structured Settlement Protection Act applied only to “tort claims” and did not apply to workers’ compensation settlement payments. In 2015 Ray Thomas settled a workers’ comp claim against his employer.  The settlement agreement provided for certain lump sum payments to him, and monthly payments for a period of 20 years.  Less than 6 months after settling his claim, Thomas sought to sell his periodic payments to DRB Capital, LLC.  The sale was approved by the circuit court. The insurance company, American General appealed the decision.  The Kentucky Court of Appeals upheld the circuit court’s decision, and American General again appealed.  In Am. Gen. Life Ins. Co. v. DRB Capital, LLC, No. 2017-SC-000329-DG, 2018 Ky. LEXIS 535 (Dec. 13, 2018), Kentucky’s highest court  reversed the decision of the lower court, and found that the settlement agreement, uniform qualified assignment, and annuity policy each contained “clear language prohibiting” assignment of the payments and since they were “the result of a workers’ compensation claim, not a tort claim” the Kentucky Structured Settlement Protection Act did not apply.

In late November, 2018 DRB Capital, LLC filed a lawsuit in Palm Beach Circuit Court, Florida against several other secondary market, factoring companies, including Rightway Funding LLC, BTG Advisors LLC, Sempra Finance LLC, Greenwood Funding LLC, and JLC Capital Funding LLC alleging that these companies interfered with DRB’s business in violation of the Florida Deceptive and Unfair Trade Practices Act by employing “a parasitic approach to obtaining customers from which to purchase the transfer of structured settlement rights.” The defendants have filed a motion to dismiss the lawsuit.

Fraud in the structured settlement secondary market appears to continue unabated. One of the latest scams seems to involve transfer companies that obtain court orders authorizing an annuitant to sell his/her periodic payments, and then the company fails to pay the seller.  The seller is then faced with chasing down the company or figuring out a way to go back to court and have the court order set aside.  This situation is exacerbated by fly by night companies with no track record and no real business.

Not one of the 49 state structured settlement protections statutes allows a company to obtain a court order authorizing the sale of periodic payments and then fail to pay the Seller.  This is fraud. Plain and simple.

If you are a “Seller” and did not receive payment pursuant to a transfer order, please contact us at (203) 504-8425 or via email at eddie@edwardstonelaw.com.

On August 3, 2017, the Miami Herald reported that Jose Camacho, the Broward County attorney who specialized in filing structured settlement transfer petitions was sentenced to one year in jail, and ten years of probation.  He plead guilty to 14 felony charges after forging over 100 judicial signatures beginning in 2012.

Edward Stone will be a guest speaker at the Society of Settlement Planners Annual Conference in Las Vegas on March 2, 2017.  Edward Stone and John Darer will participate in a panel discussion on current developments in the structured settlement secondary market.

The Consumer Financial Protection Bureau (CFPB) has filed suit in federal court in Baltimore accusing Access Funding of violations of the federal Consumer Protection Act.  Access Funding (now Reliance Funding) is a purchaser of structured settlement payment streams whose alleged predatory business practices involving people who had been poisoned by lead paint as children were exposed by investigative reporter Terrence McCoy of The Washington Post last summer.  Rep. Louise M. Slaughter (D-NY); Rep. Elijah E. Cummings (D-Md); Sen. Ben Cardin (D-Md); Sen. Barbara A. Mikulski (D-Md) and Sen. Edward J. Markey (D-Mass) all praised the CFPB effort to protect consumers who may have been victims of financial fraud by companies in the structured settlement industry.

This federal lawsuit follows on the heels of a similar lawsuit filed by Maryland Attorney General Brian Frosh in May, 2016.  The state court action filed by Attorney General Frosh is pending in Baltimore City Circuit Court. Frosh has pledged to work to “prevent vulnerable Marylanders from having their money taken from them through illegal practices.”

Earlier this year Tennessee joined the many states revising their Structured Settlement Protection Acts to provide more robust protections to those people seeking to sell some of their periodic payments to factoring companies.  Under the Tennessee Structured Settlement Protection Act, the seller is called the “payee” and the factoring company is known as a “transferee”.  The revised Tennessee statute requires that the transfer petitions be brought in the county in which the payee resides.  It also requires that the payee personally appear at the hearing, unless excused for good cause.  The payee must also submit a sworn statement detailing any prior “requested, proposed, or approved transfers”.   Tennessee Senate Bill No. 760 was signed into law by Tennessee Governor Bill Haslam on April 14, 2016.