In a ruling issued March 31, U.S. District Court Judge Lee H. Rosenthal granted Symetra's application for a permanent injunction that will prohibit Rapid Settlements, a Houston Texas based factoring company, from using arbitration in any cases involving structured settlement transfers that are underwritten by Symetra.
The action against Rapid was brought by Symetra and the National Association of Settlement Purchasers (NASP). The seemingly odd pairing was a clear indication of the mainstream factoring industry's distaste of Rapid Settlements' business practices more than "the irony of the secondary market's trade association defending the primary market from a factoring company's practices". Symetra has become a bit of an outcast from the mainstream structured settlement industry because of its own venture into factoring through subsidiary Clearscape Funding Corporation and its own documented efforts to get its own annuitants to cash in their structured settlements.
The case which Judge Rosenthal ruled on dealt with Rapid Settlements' attempted use of arbitration rulings to approve some of its structured settlement transfer cases in lieu of Qualified Court Orders. It is this author's understanding that Rapid was trying to suggest that the arbitration gets around the 40% excise tax. NASP also sought to enjoin Rapid from asserting "right of first refusal" or a security interest in any structured settlement transfer case without first obtaining court approval.
In its analysis of the case, DealFlow Media erroneously refers to the Victims of Terrorism Tax Relief Act of 2001, which was signed into law by President George W. Bush on January 23, 2002, as "the Structured Settlements Protection Act". The Victims of Terrorism Tax Relief Act of 2001 explicitly sets forth the terms by which purchasers of structured settlement payment rights (like Rapid Settlements) can receive an exclusion from a whopping 40% excise tax that would otherwise apply to such purchases. Those terms are embodied in Internal Revenue Code Section 5891. The majority of states in the USA have now passed their own structured settlement protection acts.
A number of structured settlement brokers, settlement planners and factoring company representatives have falsely characterized the Victims of Terrorism Tax Relief Act of 2001 as legalizing factoring. Those who remain so misinformed should re-read the Act and the Technical Explanation of the Joint Committee on Taxation linked below.
For more on Rapid Settlements click here
For more on the Victims of Terrorism Tax Relief Act of 2001 (relevant section appears on pages 11-13) click here
For more on DealFlow Media coverage of the structured settlement industry cick here
For more on Symetra click here
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