by Structured Settlement Watchdog®
Andrew Carnegie once said "And while the law of competition may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department". The Structured Settlement Watchdog®, John Darer®, is happy that there is increased competition in the settlement purchasing industry, because that can only mean better things for those consumers, who for varied reasons are faced with a need for liquidity that may only be available from a specialty funding source.
Whether on their own initiative, or through financial advisors both within and outside of the structured settlement and settlement planning industry, the process of competitive shopping was for many years extremely cumbersome. Thinking about being in urgent need of cash and having to make separate calls to each company and the concomitant multiple of "harassing" phone calls in return. It's not hard to see why an annuitant could simply or unwittingly give in to a bad deal because of the time consuming and draining process.
Within the last 4 years or so, on line factoring "exchanges" like Settlement Quotes and Quote Me A Price entered the fray, giving consumers an easy way to shop a factoring market online "mini-mall" for offers to buy their structured settlement payments rights. Essentially the selling annuitant goes to the website of the factoring exchange enters in some information including the best offer achieved to date and they "set it and forget it". The structured settlement watchdog has previously shared news of dramatic differences in offers when annuitants shop through an exchange. We've observed or heard of instances where offers were 20-50% greater.
Just the other day I learned from a source that an annuitant had received an offer with an attractive discount rate of less than 9%. The offer was believed to have involved a referral from a structured settlement broker. Then when the annuitant put the deal up for bid on a factoring exchange, a bid came back from a company on the exchange with a discount rate that resulted in greater cash offer of over $100,000! That's real money, dog!
The structured settlement watchdog believes that it is in consumers' best interest to keep pounding away in an effort to bring the cost of doing these deals down. He doesn't believe that " a price is just a price" as one commentator claimed in 2008.
What Andrew Carnegie's nugget of wisdom tells us is that some factoring operatives will have to adapt their business models to the new reality to survive.
Big advertisers are being found out! We have the Imperial Holdings SEC filing for their IPO to thank for providing the conclusive evidence of how substantial sums of money spent on advertising affects the effective discount rate charged to selling structured settlement annuitants. The effective discount rate is the discount rate incorporating ALL transaction costs for the structured settlement factoring transaction.
The structured settlement industry itself is a contradiction in terms and somewhat oblivious to what is going on around it with respect to today's factoring market. On the one hand the primary market helped to negotiate the law that gave rise to the 2001 law that regulates structured settlement factoring transactions yet with the exception of a few who have chosen to educate themselves and speak up, the business has been very cloak and dagger, paralyzed by fear that public actions raise the threat level to structured settlements to Def-con 5.
A number of industry participants refer business to factoring companies and some have been known to take referral fees. A number of factoring companies offer to pay off structured settlement brokers, settlement planners and financial advisors because it's allegedly a cheaper way of acquiring sellers than spending large sums on advertising dollars. Nothing illegal about it, but irrefutable that any such fees utimately come out of the pocket of the selling annuitant.
"Competition advocates have won many victories over the last few decades. We have largely won the intellectual debate: Economists and legal scholars around the globe now recognize the benefits of competition to consumers and to the economy as a whole." Timothy Muris Chairman, Federal Trade Commission Creating a Culture of Competition September 29, 2002