On May 26th, 2010 Judge Norma Ruiz denied a request for court approval to transfer future structured settlement payment rights to Settlement Funding of New York, LLC (Peachtree Financial). The opinion, seen here, is a direct response to the “cash now” advertising of this company. It’s good to see a judge take the time to enforce the Structured Settlement Protection Act as noted by this author.
Do you ever wonder how structured settlement factoring companies pay for commercials that air all day and all night? I bet Heather Sutton, a 23 year old woman from East Bangor, Pennsylvania could tell you. Heather sold a $150,000 payment due in 2024 to Peachtree Settlement Funding for a one time lump sum payment of $11,000. Settlement Quotes could purchase this same payment for $43,000. Unfortunately for Heather she didn’t contact Settlement Quotes.
Settlement Quotes has compiled a list of every company that purchases structured settlement payment rights. Throughout the next 3 weeks we will be writing an article on every company in the industry, providing facts about each company including their Better Business Bureau record, number of years in business, number of employees, and many other pertinent information.
Last week the NASP met for their annual meeting and a few individuals have blogged about the event. This author would like to comment on a few points brought up by other authors.
Insurance Companies Purchasing Their Own Product
There are currently two issuers who factor structured settlements- Allstate and Clearscape Funding (Symetra). The problem with these two companies is that they have high discount rates starting at 10- 12%, they take forever to complete a transaction, and it is a conflict of interest to purchase the settlement on the back end and make another profit off of the annuitant.
An annuitant can receive a better rate anywhere.
Reasons an Annuitant Sells the Rights to Their Payments
Over the past few months Settlement Quotes has been keeping track of the reasons our clients have sold the rights to their payments. With the consent of these individuals we will be publishing the list to show how 99% of these individuals had no choice but to sell their payment rights because of their particular financial circumstances.
Matt Bracy of Settlement Capital wrote in this blog post, an uninformative post about servicing of structured settlement payments by factoring companies. Before I get into a rant about why Mr. Bracy did not get down to the real issues in his blog post, I would like to first say that I do respect Mr. Bracy and the work he does for the structured settlement factoring industry.
The issue revolving around the servicing of structured settlement payments has nothing to do with the split payment scenario. In Mr Bracy’s blog post, he used an example of a payee (receiving structured settlement payments) who is receiving $1000 per month and needs to purchase a new car to get back and forth to work on a daily basis. In his scenario the payee (now “seller”—selling the rights to their structured settlement payments) chooses to split their $1000 payments in half and sell the rights to enough payments to purchase the new car.
Many times the insurance company will not agree to split the settlement payment and instead sends the entire payment to the factoring company, where in turn the factoring company sends the unpurchased half of the settlement payment to the payee. Yes, this is a form of “servicing,” but this is not the real issue.
The REAL issue is when a factoring company purchases xx amount of payment rights, but has all of the remaining settlement payments assigned to them during the process. The factoring company now owns all of the payment rights to the policy and makes the appropriate payments when they are due to the payee. The problem with this scenario is if this annuitant wants to factor the remaining payments, the present value of the annuity is worth far less because the payee does not have the ability to shop around for a better quote. Now, the factoring company that owns the payment rights to the policy can offer the annuitant an unfair market value price. The annuitant is at the mercy of the factoring company.
Real Example (we will keep this client’s last name conceiled to protect her privacy)
Sarah, came to Settlement Quotes 2 weeks ago interested in factoring her remaining structured settlement payments. She had previously factored 100 payments with Peachtree Settlement Funding, but during that transaction Peachtree was able to assign the rest of Sarah’s remaining payments to themselves. Sarah was unaware that she no longer owned her structured settlement. She first approached Peachtree asking for a quote on the remaining payments, Peachtree quoted her $9000 for the remaining 120 payments. She decided to go elsewhere to receive quotes. To make a long story short, we ended up quoting her $34,000 for her remaining 120 payments, but we were unaware the Peachtree was “servicing” all of her remaining payments.
To put this in perspective I had Sarah call New York Life (the issuing insurance company) with myself on the telephone. New York Life told Sarah that she no longer owned the policy, and although she is the measuring life, they refused to speak to her, she needs to contact Peachtree in order to obtain how many payments are remaining.
The value of this annuity is significantly reduced because of the following factors:
At this point the only way we could purchase Sarah’s structured settlement payment rights is to first, payoff Peachtree, second, subtract a substantial amount of money due to the risk of accepting payments from another factoring company. We ended up offering Sarah $21,000 compared to the $34,000 she would have received if New York Life was still making the payments.
In Mr. Bracy’s post he stated the following, “Such servicing arrangements should be reflected in the transfer order. Payees/sellers who later elect to sell more payments should be free to do so.”
“Should be free to do so,” is not a reality and unfortunately is not regulated within this industry. I feel that Mr. Bracy is skirting around the real issues.
Settlement factoring contracts need to be clarified in order for annuitants to be aware of the true facts behind the legal documentation. The real issue is that these annuitants no longer own there own structured settlement.
John Darer of Structured Settlements 4 Real commented on our latest blog post, reinforcing the original 10 potential improvements that can be made to the structured settlement factoring industry. This author would like to comment on several points made by Mr. Darer.
John: “I would like to see a neutral Seller’s Guide to Structured Settlement Factoring be produced and required by regulation to be distributed on initial solicitation or at least with contract forms. Such a guide would be parallel in nature and purpose to the Life Insurance Buyer’s Guide that is required in the life insurance sales process in many jurisdictions.”
Comment: I believe that a Seller’s Guide to Structured Settlement Factoring would tremendously improve the industry once enacted. This should be a top priority in the next NASP meeting.
John: ” No doubt number 9 could be an issue for the likes of opportunists such as Peachtree Settlement Funding (NASP’s second largest member) who have heretofore had the reputation of only doing deals with discount rates in the high teens.”
Comment: Mr. Darer was referring to the 9th improvement: “Standardized caps on structured settlement factoring discount rates.” While Peachtree and other factoring companies have been known to factor structured settlements with discount rates in the high teens, these companies will still be able to make profits even if the discount rates were capped much lower. From a business stand point, tort victims who are uneducated in the form of transferring the rights to their structured settlement payments will still agree to discount rates that are capped in the mid to low teens, which leaves a margin of profit for most structured settlement factoring companies.
Our goal isn’t to eliminate companies that do offer higher discount rates, but is to improve the structured settlement factoring industry. In return, the primary market will benefit by the more desirable outlook of the secondary market.
John: “With respect to number 6, I think regulations concerning disclosure of any compensation to anyone as a result of the structured settlement factoring transaction would be apropos. This would prevent a disclosure of payments to one firm who then pays undisclosed kickbacks to another firm. The consumer should know who is getting paid, how it affects their discount rate and the amount of money that ultimately gets into their pocket.”
Comment: Our comment, “regulations justifying structured settlement broker commissions in factoring transactions,” is not accurate and does not show Settlement Quotes, LLC’s standpoint on the matter. We work with several structured settlement broker’s and do not mind paying commissions to these individuals. Mandatory disclosure of all fee’s and commissions for all parties involved in a structured settlement factoring transaction is a better view of our standing. This regulation would include Settlement Quotes to disclose our fee to clients.
John: “The structured settlement and factoring industries should consider a pan industry task force that pools efforts to hunt down and thwart owners of “scraper” “made for Google Adsense websites” that steal content from either industry’s member websites and then misinform the public.”
Comment: I agree 100% with this viewpoint and would gladly help in this effort.
“They charge customers extremely high rates 19.99 is the MINIMUM that they will do a transaction for, unless a manager approves something lower (which is rare). Other companies will charge much lower rates and get you more money almost every single time.”
The above quote came directly from an ex employee of Peachtree Settlement Funding on this article from Rip Off Report. How does a company who has rates of 19.99% continue to thrive in todays structured settlement factoring market?
Attention: Tort victims who are selling structured settlement payments, DO NOT GO TO PEACHTREE SETTLEMENT FUNDING! You can receive a better quote be talking to any other company in the factoring market. The difference between the 19.99% and a 10% discount rate could mean tens of thousands of dollars for you and your family. Do yourself a favor and get a second opinion before signing any documents with this company.
This company is able to offer these types of rates due to uncompetitive lead generation from both television and internet advertisements. While annuitants will most likely receive a second opinion on the internet, most television victims will not shop around for another quote. This is unfortunate for both tort victims and the structured settlement factoring industry.
Peachtree Settlement Funding needs to step up and set a better example. These types of rates were seen in years past but are slowly dwindling. It is sad to see a company that can still get away with horrible discount rates like those of Peachtree Settlement.