by John Darer
RSL Funding proboscis, "Stewie" Feldman has a simple message for Imperial Funding's Structured Settlement buying operation:
It's about time the structured settlement factoring industry started asking questions of itself, particularly with the abject failure of states and the federal government to regulate and enforce advertising and business practices.
As we previously reported, the registration statement that Imperial Holdings, Inc. filed with the SEC for its Initial Public Offering stated that its discount rates for the first portion of 2010 were averaging 16.3 to 17%. RSL now corroborates our assertion that these are among the highest in the industry. These discount rates are the rates charged to tort victims who sell their structured settlement payment rights. Assuming you know the "effective discount rate" (which accounts for all other costs associated with the transaction) you can then compare the rate to the cost of other sources of capital that may be available to you. RSL then reports that a senior executive of Imperial testified that rates were "averaging 18-20% ( even higher than reported on the S1 and S1-A!)
In an October 2, 2010 press release, RSL Funding reports:
"When questioned in a pending legal proceeding as to how Imperial can offer such little value to its customers, Imperial's Senior Vice President, (Deborah) Benaim, explained that Imperial spends upwards of $5,000,000.00 in marketing costs a year, including almost $4,000,000.00 on television advertising. According to an industry source, it is well known that customers that respond to television ads tend not to competitively shop, resulting in these customers receiving among the lowest prices paid. According to Benaim and the government filing, One industry analyst figures that a customer not bearing this cost each customer, on average, bears $14,000.00 in marketing costs.would receive on the average a full one-third more money up-front" . (underlines for emphasis).
In a recent court decision, the New York Supreme Court wrote that Imperial's interest rates were "neither fair nor reasonable taking into account the actual amount [the customer] would be receiving. [The customer] would be receiving less than 1/3rd of the discounted present value . . . after legal fees and administrative fees".
Given the animus and pending litigation between Rapid Settlements and Peachtree (where "they know how to hammer customers" and as the report suggests a number of the Imperial staff came from) some could, at first blush, dismiss the report for potential bias. But the message IS important and relevant.
"Smart customers shop rates. Many judges question customers to ensure that they are getting a fair deal by requiring evidence of competitive shopping,"
Judges in some New York jurisdictions require evidence of competitive shopping on infants compromise cases prior to approving a structured settlement. So why not require a reasonable amount of competitive shopping when someone is seeking Court approval to liquidate them. Given the time sensitivity of those in need of cash, in my opinion this will require a more efficient market place and elevate the factoring exchange concept. An electronic factoring exchange simplifies the competitive bidding process.RSL Funding opines that the new Consumer Financial Protection Bureau will have a dramatic, adverse impact on the structured settlement factoring industry.