Factoring Company "Servicing" of Structured Settlement Payments-Thought Leaders Butt Heads

Matt Bracy of Settlement Capital Corporation and Andrew Cravenho of the Settlement Quotes Factoring Exchange are at odds

on the issue of "servicing" structured settlement payments by factoring companies.

Bracy does not appear to completely address the entire issue in his recent post (linked below). Agreed that some life insurers will not agree to "split" the settlement payment and make payment to multiple payees and instead send the entire payment to the factoring company. The factoring company sends the unpurchased half of the settlement payment to the payee and that this is the initial premise of “servicing".

Cravenho says "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 (the factoring company) during the process. The factoring company now owns all of the payment rights to the policy (payments) 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".

Cravenho goes onto give a chilling real life example in a case involving "cash now pusher" Peachtree Settlement Funding.

If the "servicing" is  a means for the factoring company to control or have de facto control of subsequent transfers at a price that is unreasonable and competitive how does that benefit consumers? Peachtree has the reputation of charging discount rates in the high teens which are nowhere near competitive with the marketplace. When such rates are charged on the transfer of rights to structured settlement payments backed by AAA rated paper (New York Life annuity) it's an outrage.

Click here for the position Matt Bracy and Settlement Capital in "Factoring 101: The Truth About Servicing"

Click here for Andrew Cravenho and Settlement Quotes, LLC's position in "The Real Truth About "Servicing"

NEW 4/24/2008 Click here for David Springer of Sovereign Funding's "weigh in" on the servicing issue

Readers should note that neither of the combatants' companies are "cash now pushers"

Comments

[Matt Bracy]

I read Mr. Cravenho’s article this morning, and I think our disagreement, if it really exists, is based on some misunderstandings and imprecise uses of terminology. In the example Mr. Cravenho uses he says that “Peachtree was able to assign the rest of Sarah’s remaining payments to themselves [sic].” First, any assignment of rights would have been from Sarah to Peachtree – Peachtree could not “assign” anything to itself, it being a tried and true maxim of the law that one can only assign what one owns. Second, although I do not know of this transaction specifically, if there was an “assignment” then Peachtree bought all the payments (assignment = purchase). Indeed, Mr. Cravenho refers to factoring companies “owning” all the payment rights pursuant to a servicing agreement. We are clearly not talking about the same thing. If Peachtree owns the rights to the payments, then they cannot be sold again. Instead, I suspect Peachtree did exactly what I described in my article and agreed to service the payments. The abundant use of inaccurate terminology may also explain why New York Life in the example told Sarah (with Mr. Cravenho listening in) that she “no longer owned the (annuity) policy.” As you well know John, she NEVER owned the policy.

Although I am loath to defend a competitor on a specific transaction when I don’t know the details, I think Mr. Cravenho’s indefensible position is best exposed when you ask this question: What was Peachtree supposed to do? Sarah apparently contacted them and had a desire to sell some of her structured settlement payments (not all). The insurance company that issues the payments apparently refused to split them. What financially reasonable course should Peachtree have taken? Some insurers have “suggested” (demanded, actually) in these circumstances that the factoring company buy all the payments. Is that the best answer? How does that relate to meeting the statutorily mandated “best interests” standard? Should Peachtree now, when a subsequent purchasers comes along, take an inferior position? Maybe the best answer, and one we should all advocate, is for insurance companies to agree to split payments.

Although Mr. Cravenho calls my article “uninformative,” perhaps a little more time on the basics and lexicon of structured settlement factoring would be advised. I will continue to try to write more informative articles in the future.