West Virginia delegate Ron Walters appears to be tightening up the noose for structured settlement factoring companies once again in West Virginia. If your not going to do it right, DON'T do it at all! After the last round of legislation for factoring companies in the state of West Virginia not much was accomplished except mandating a guardian ad litem be appointed to every annuitant selling future payments.
In principal this may seem like a great idea, but over the long run this bill is taking money out of the annuitant's hands. Every appointed guardian ad litem costs anywhere from $1,000- $2,000, payed for by the factoring company processing the transaction. This cost is deducted directly from the structured settlement recipient and is essentially a life altering amount of money.
With the deduction of funds going to the annuitant, the discount rate of the transaction sky rockets into territory where the transaction will most likely be denied in front of a judge. Lets use an example to demonstrate this scenario:
Suzy is receiving a $25,000 lump sum payment on 6/1/2010. With no court fee's a company can complete this transaction at a discount rate of 7.6%- 8% which turns out to net the annuitant between $21k- $22k. With the reduction of the normal court fee's of $3,500- $4,000, the net amount received by the annuitant is reduced to $17k- $18k (18% discount rate). With the appointment of the guardian ad litem, the costs of this transaction would make this payment stream too expensive to factor. The discount rate of this transaction exceeds 23% with no profits being earned by the factoring company.
This author believes that legislation is a good step forward for the structured settlement factoring industry, but there is a proper way to go about these measures. During the next round of legislation, Mr. Walters is expected to put a rate cap on factoring transactions in the state of West Virginia. With the past two bills combined, Mr. Walters will be eliminating the opportunity that many residents of West Virginia will have to factor future structured settlement payments.