Understanding the Impact of Structured Settlement Protections.
Each state has its own set of statutory safeguards in place to protect structured settlements and their payees from predatory financial practices. Some of these legal frameworks, however, don’t work nearly as well as they were originally intended. For example, laws requiring a judge to formally sign off before anyone can sell their structured settlement payments might sound incredibly solid on paper.
In practice, however, these hearings have historically amounted to little more than a bureaucratic formality. In fact, many of these court hearings only last a few minutes, with absolutely no one in the courtroom actively looking out for the annuitant’s long-term financial interests. This lack of oversight often leaves vulnerable individuals exposed to aggressive, cash-now companies that buy up future guaranteed income streams for a fraction of their actual worth.
The Maryland Reform Success Story.
Recognizing the systemic flaws in the existing system, Maryland decided to change that reality. The state passed landmark legislation that drastically reduced the number of predatory factoring transactions within its borders from a staggering 1,800 cases down to just 6 in a single year.
This dramatic decline was made possible through sweeping legislative reforms that fundamentally altered how the legal system handles these transfers. Specifically, the new rules required:
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Localized Jurisdiction: Cases must now be heard exclusively in the recipient’s home county, preventing companies from forum-shopping for lenient judges.
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Mandatory Judicial Scrutiny: Judges are now strictly required to thoroughly examine the current and future financial circumstances of the seller before granting approval.
Raising Awareness in the Industry.
The deceptive nature of the factoring industry—and the aggressive measures being taken by advocates to combat it—was discussed in depth during a recent episode of the National Structured Settlement Trade Association’s (NSSTA) Settle Smart series. In this episode NSSTA Executive Director Eric Vaughn sits down with Sally Greenberg, CEO of the National Consumers League (NCL) to discuss the real-world impact these transactions can have on injury victims and families.
To better understand how these legislative shifts are reshaping the financial landscape and protecting settlement recipients nationwide, give it a watch above and read their full article here.
For more information on structures in general, feel free to contact us.
– Parmelee Brothers
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Structured Settlement Protections: Frequently Asked Questions.
The primary risk is a severe loss of long-term financial security. Aggressive factoring companies frequently purchase future, guaranteed income streams for a small fraction of their actual lifetime value, leaving the recipient without the financial safety net their settlement was originally designed to provide.
Maryland successfully reduced predatory factoring transactions from 1,800 cases down to just 6 in a single year by implementing two critical legislative reforms:
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Localized Jurisdiction: Factoring companies are forced to file cases exclusively in the settlement recipient’s home county, preventing them from “forum-shopping” for lenient judges.
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Mandatory Judicial Scrutiny: Judges are legally required to thoroughly examine the seller’s current and future financial circumstances before granting approval.
Traditional protections often fail because court hearings can become quick, bureaucratic formalities lasting only a few minutes. Without strict oversight, judges may approve transfers without thoroughly evaluating whether the transaction serves the seller’s long-term financial interest, leaving vulnerable individuals exposed to aggressive cash-now companies.
Structured settlement protection laws are state-level statutes designed to protect injury victims (annuitants) from predatory financial practices. They typically require a judge to review and approve any transaction where an individual attempts to sell their future guaranteed settlement payments for an immediate lump sum of cash.
The NSSTA is actively working to protect settlement recipients through three main initiatives:
- Federal Advocacy: Urging the CFPB to crack down on unfair and deceptive industry practices.
- Judicial Education: Providing Continuing Legal Education (CLE) programs to help judges spot predatory deals and strictly enforce “best-interest” laws.
- Public Awareness: Partnering with journalists and lawmakers to expose bad actors and push for stricter legal reforms.
Before signing any contract with a factoring company, take these essential steps:
- Check for hardship options: Contact your original settlement insurance company to see if you can access emergency funds under better terms.
- Demand full disclosure: By law, companies must provide a written breakdown of the total value of your payments, the present value, the lower lump sum offered, and all hidden fees.
- Know your cancellation rights: Most states offer a “cooling-off” window. Ensure your right to cancel is confirmed in writing before signing.
On Last Week Tonight, John Oliver exposed the predatory nature of the factoring industry, which buys an estimated $1 billion in payment rights annually. The segment revealed that companies routinely target vulnerable or cognitively impaired individuals, taking an average of 60% of their money through fast-tracked court hearings that lack proper scrutiny.
A guardian ad litem (GAL) is a court-appointed, independent advisor who reviews a proposed sale to ensure it is genuinely in your best interest.
- GALs provide judges with unbiased facts that factoring companies might hide.
- Currently, only five states authorize GALs for these cases.
- When a GAL is involved, predatory transactions drop sharply, and many sellers choose to withdraw their requests.
An SSPA is a state law designed to regulate the sale of settlement rights to factoring companies. While all 50 states and D.C. have an SSPA requiring a judge to approve transfers, consumer advocates note that court oversight is often weak and heavily favors the factoring companies.
Yes. Under Section 104(a) of the Internal Revenue Code, original structured settlement payments are entirely exempt from federal, state, income, interest, and capital gains taxes. Note: This tax-free status does not transfer to the lump sum if you sell your payments to a factoring company.
Factoring companies typically take a massive cut. Data highlights severe financial losses for sellers:
- An analysis across seven states showed factoring companies retain an average of 60% of the payment stream’s total value.
- The National Structured Settlements Trade Association (NSSTA) documented discount rates between 16% and 28%.
- Investigative reports in some states found payees receiving as little as 25 cents on the dollar.
Structured settlement factoring is when a third-party company buys the rights to your future settlement payments in exchange for an immediate cash lump sum.
- How it works: You permanently surrender your future payments, and the factoring company collects them instead.
- The catch: The upfront lump sum you receive is only a fraction of the total value of your original settlement.
