Maryland Senate Bill 734, which amends the procedures for structured settlement transfers took effect on October 1, 2016. Senate Bill 734 requires that factoring companies register with the Maryland Attorney General before filing transfer petitions or applications within the State of Maryland. The bill further requires that factoring companies (known as transferees under the structured settlement protection statute) post a surety bond before doing business in Maryland. In an effort to prevent “judge shopping” or “forum shopping” the new law also requires that all transfer petitions be filed in the county in which the payee lives. In September, Maryland Attorney General Brian Frosh announced that his office was accepting registrations under the new law. If a factoring company is not registered with the OAG (Office of Attorney General) the factoring company may not file a transfer petition in Maryland. This new legislation came on the heels of investigative journalist Terrence McCoy’s article in The Washington Post (“How companies make millions off lead-poisoned, poor blacks”) on the predatory business practices of many structured settlement factoring companies. Attorney General Frosh’s suit against Access Funding, LLC and other structured settlement factoring companies filed on May 10, 2016 is pending in the Circuit Court for Baltimore City. Maryland’s new Structured Settlement Protection Act is among the most comprehensive of the 49 state structured settlement protection acts.
In March, 2016 the Florida legislature passed a bill revising the Florida Structured Settlement Protection Act § 626.99296 et seq., adding new requirements designed to protect individuals selling their structured settlement payments in the secondary market. The revised Act requires that (1) transfer petitions be filed in the county where the payee resides; (2) all payees attend the hearing on the transfer petition (unless the court determines that good cause exists to excuse the payee from attending); (3) the transfer petition include a summary of all transfers by the payee to the transferee (or an affiliate of the transferee ) filed within the four years preceding the date of the transfer agreement; (4) the transfer petition include a summary of all transfers by the payee to any person or entity other than the current transferee within the three years preceding the date of the transfer agreement, if actually known to the transferee or disclosed by the payee; (5) the transfer petition include a summary of any proposed transfers by the payee to the transferee that were denied within the two years preceding the date of the transfer agreement; and (6) the transfer petition include a summary of any other proposed transfers that were denied, if known by the transferee or disclosed by the payee. These revisions are definitely steps in the right direction and go a long way towards supplying a Florida Circuit Court with information necessary to make a determination that a transfer is in the payee’s “best interest.”
However, the revised statute allows the court to hear an application for a transfer even if the settlement agreement prohibits the transfer of payment rights. This means that no matter how hard a personal injury lawyer may work to protect his/her client from the secondary market, the carefully crafted structured settlement designed to protect an injury victim for an entire lifetime can be undone with the stroke of a pen. Without a doubt, this leaves vulnerable settlement victims at the mercy of unscrupulous factoring companies and their high pressure sales tactics.
These revisions to the Florida Structured Settlement Protection Act § 626.99296 et seq., are effective as of July 1, 2016.
Revisions to the Illinois Structured Settlement Protection Act, 5 ILCS 153/1 went into effect last month in the wake of Settlement Funding, LLC v. Brenston, 998 N.E. 2d 111 (Ill. App. Ct. 2013) where the Illinois Appellate Court held that the trial court erred in permitting a transfer where the settlement agreement contained an anti-assignment clause and the factoring company failed to disclose this to the court. Among the changes to the Illinois Structured Settlement Protection Act are provisions permitting an “interested party” to waive these assignment prohibitions. The revisions to the Illinois Structured Settlement Protection Act also include provisions designed to address “forum shopping” inside the state by requiring that transfer petitions be filed in the county where the payee lives.
The Washington Post reported that “Prince George County Circuit Court has implemented significant reforms” in its handling of structured settlement payment petitions filed pursuant to the Maryland Structured Settlement Protection Act. All sellers and their independent advisors must now appear at the hearings, and all petitions must be filed using the seller’s full name, rather than initials. Judge Herman C. Dawson who previously presided over the transfer petition hearings will no longer do so. Unfortunately, as this latest article on the structured settlement industry by Terrence McCoy points out, loopholes in the Maryland Structured Settlement Protection Act “benefit the companies” purchasing these structured settlement payments. More judicial reforms such as those being implemented in Prince George County would go a long way in protecting the recipients of structured settlements.
Council members Mary M. Cheh (D-Ward 3), Charles Allen (D-Ward 6), Anita Bonds (D-At Large), David Grosso (I-At Large) and Brandon T. Todd (D-Ward 4) introduced a structured settlement protection act to protect District of Columbia residents seeking to sell their structured settlement payment streams. While we agree with the op-ed in The Washington Post on September 11, 2015 by legal aid attorneys Heather Latino and Thomas Papson that the proposed legislation is a “huge step toward ensuring that District residents with structured settlements from personal injury cases are not victimized a second time by a company seeking to purchase their settlement payments” structured settlement protection acts need to ensure that they work to protect the recipients of structured settlements, not the companies purchasing the structured settlement payment streams. This proposed legislation does not do enough.
In the wake of The Washington Post article by Terrence McCoy on the exploitation of lead-poisoning victims by the structured settlement factoring industry, Rep. Louise M. Slaughter (D-NY), Rep. Elijah E. Cummings (D-MD), and Rep. Chris Van Hollen (D-MD) have called for an investigation into the practices of the companies that buy lawsuit settlements at steep discount rates for one-time lump sum payments. In an interview with The Washington Post, Rep. Cummings said “[W]e need to look at the laws that are out there, both state and federal, and try to come up with some reforms to protect these folks.” Revisions to the current state structured settlement protection acts and Section 5891 of the Internal Revenue Code are no doubt in order. While judicial scrutiny of transfers seems to take place in some jurisdictions – certain courts in Texas, California and New York being known for their intense scrutiny of settlement transfer applications – other courts seem to turn a blind eye to the transfer applications, permitting the “sale” of payments without a court appearance by the seller, no disclosure of prior transactions, and without legal counsel or financial guidance. Surely that lack of scrutiny is not what was intended when Congress and 48 states enacted protective legislation with a “best interests” standard.
A recent article in The Washington Post by Terrence McCoy “How companies make millions off lead-poisoned, poor blacks” highlights the problems plaguing the structured settlement factoring industry, where recipients of structured settlements are often urged to “sell” their payment streams in exchange for lump sums of cash at steep discount rates. Structured settlement protection acts which have been enacted by 48 states were designed to protect those seeking to sell their payments by providing court oversight and disclosures to sellers. All 48 statutes that have been enacted require that the sale be in the “best interests” of the seller, taking into account the needs of his/her dependents. Unfortunately, many of the structured settlement acts are not doing a good job of protecting anyone. According to the Washington Post, one company has had 160 petitions before the same judge in Prince George Circuit Court in Maryland, with the petitions approved 90% of the time. Eric Vaughn, executive director of the National Structured Settlements Trade Association (NSSTA) is quoted in the article as saying “And these companies are getting around the intents of the law….And when that happens, people get hammered.” After the article appeared in The Washington Post, Attorney General Brian E. Frosh (D) and Maryland legislators vowed to tighten restrictions on transfers. While “best interests” may be interpreted differently by different courts in different states, it clearly cannot mean “self-interest” of the factoring companies. When factoring companies prey upon seriously injured individuals and consummate multiple transactions over a short period of time, something is clearly wrong.
Two Edward Stone Law cases were featured prominently in today’s Wall Street Journal – “Firms Help Settlement Holders Cash Out Payments Meant to Last a Lifetime”. What the WSJ article fails to describe is the high pressure predatory sales tactics used to raid large structured settlement annuities that were intended to last a lifetime. The Taylor and Lafontant cases highlight just how far the factoring industry has fallen in recent years and how important it is to obtain independent professional advice. Instead of providing needed liquidity, as advertised, bad actors target large structured settlement annuities and shop for courts and judges they know will rubber stamp petitions that don’t meet the best interest standard required under state and federal law. If a slick annuity salesperson tries to convince you to fake your relocation to another state with promises of “cash now”, think twice. You could lose your identity (true story) and wind up destitute (truer still). If you or someone you know has been victimized by structured settlement fraud, Edward Stone Law will evaluate your transaction at no charge, and let you know if help if available. You can reach us via email at firstname.lastname@example.org or via telephone at (203) 504-8425.
Edward Stone will be a guest speaker at the Society of Settlement Planners 2015 Annual Conference in Las Vegas on March 30, 2015. Mr. Stone’s presentation will focus on the risks to settlement planners in the aftermath of the Executive Life Insurance Company of New York (ELNY) failed rehabilitation and eventual liquidation.
The structured settlement business is shrinking as falling demand makes them less attractive to claims professionals. But a potentially bigger issue for the industry involves ongoing litigation involving Executive Life of New York (ELNY). In a new article for LifeHealthPro, attorney Edward Stone highlights the impact this litigation has for both a major structured settlement company and Casualty insurers who use structures to resolve cases. As Stone writes, this litigation “threatens one of the product’s perceived key advantages for claims departments: namely, the belief that use of a structured settlement to resolve a claim does not entail additional risk.” Read the full LifeHealthPro article here.