by John Darer CLU ChFC MSSC CeFT RSP CLTC
The rights of payees receiving structured settlement payments are protected under Title 17 of the New York State General Obligations Law, also known as New York's Structured Settlement Protection Act.
Section 5-1702 of the New York Structured Settlement Protection Act requires certain disclosures on the creation side of a structured settlement with the burden being placed on the defendant or the defendant's attorney to communicate essential terms of the structured settlement and certain caveats to the claimant (plaintiff) or claimant's (plaintiff's) attorney. either in the settlement agreement or in a separate disclosure.
Section 5-1703 of the New York Structured Settlement Protection Act requires certain disclosures to the payee in the event of a structured settlement transfer (i.e structured settlement payee wishes to sell his or her structured settlement payment rights). Not less than ten days prior to the date on which the payee signs a transfer agreement, the transferee (i.e. the structured settlement factoring company, a/k/a structured settlement transfer company, a/k/a buyer of structured settlement payment rights) shall provide to the payee by first class mail and certified mail, return receipt requested or United States postal service priority mail, a separate disclosure statement, in bold type no smaller than fourteen points.
Why is this necessary? One of my favorite clients in Connecticut is concerned with what he calls the real rate of return is on a structured settlement. Some brokers simply quote the Internal Rate of Return but he wants to know the "real rate" and I give it to him so that he can properly evaluate the decision. When it comes to structured settlement factoring most people want to know the discount rate. "What's your discount rate?" they say. What is now about to be revealed to you is why you need to be like my client in Connecticut and ask "what's the real discount rate?"
As fate would have it, on Tuesday I received a copy of a disclosure that was provided to a payee by J.G. Wentworth which I have linked for you here 5_1703_disclosure.pdf I think you will find it to be compelling reading. A 5.4% discount rate is quoted as being used to discount the structured settlement payment rights being sold to present value. Then a slew of charges are tacked on and as disclosed on page 2, the effective annual discount rate is 19.90%. Holy Bloated Blimps!
Clearly stated in the disclosure: BASED ON THE NET AMOUNT YOU WILL RECEIVE FROM US AND THE AMOUNTS AND TIMING OF THE STRUCTURED SETTLEMENT PAYMENTS THAT YOU ARE TURNING OVER TO US YOU WILL, IN EFFECT BE PAYING INTEREST TO US AT A RATE OF 19.90% PER YEAR.
In these days where you can get credit cards at 0% interest for 12 months or 15 months or balance transfers (from some at low rates for the life of the balance) is it smart to pay 19.9%?