by John Darer
On November 30, 2007 I started a grass roots initiative to counter what I perceived at the time was a stage one industry "cancer" that had yet to metastasize. The industry "cancer" ran counter to what many brokers were saying publicly and what the National Structured Settlements Trade Association (NSSTA) seemed to hold out in its bylaws but did not enforce. In my opinion and for a number of people, including some lawyers I spoke to, it had the potential to be bad for business.
In the year leading up to November 30, 2007, the National Structured Settlements Trade Association (NSSTA) had issued a policy letter ( in 2006) concerning how the alleged factoring activities of certain of its members intersect and possibly conflict with the association's bylaws. During 2007 I heard from a major blog source (from the factoring industry) that some structured settlement brokers were (1) offering to sell lists of names of structured settlement annuitants to this individual (2) that the overwhelming majority of them were getting paid undisclosed commissions or referral fees and (3) some were unilaterally providing structured settlement documentation to factoring companies or brokers
The Structured Settlement Transparency Initiative proved to expose me to great personal and professional risk from those who felt threatened by the ongoing industry discussion about this activity and its being kleig lighted.
Yet more than 4 years since I started the structured settlement transparency intiative, and just 3 years after the NSSTA Board of Directors publicly distanced itself from it without endorsing or disclaiming it , the NSSTA, through an update of the 2006 letter that was distributed by email to members yesterday, addressed certain activities (including many of the same ones that were in the SSTI) that are incompatible with its mission. Do I feel vindicated? You bet I do!
Here is what NSSTA said:
Dear (Member )
We are writing to review with you and your organization the qualifications for
membership in NSSTA. This is a restated and updated version of a letter first
distributed to NSSTA members in October 2006.
As you know, under NSSTA's Bylaws, "The primary mission of the Association shall be to
promote the establishment and preservation of structured settlements in order to
provide long-term financial security to personal injury claimants and their
families through periodic payment of compensation." (Article I, Section 3).
Accordingly, membership in the Association is available only to "a business organization or
individual that (a) is engaged in activities that advance the Association's
mission, as set forth in Article I, Section 3; and (b) is not engaged, directly
or through any related party, in other activities that are incompatible with
such mission." (Bylaws Article II, Section 1). The NSSTA Board of Directors is
responsible for determining whether organizations and individuals meet the
Association's membership qualifications. (Article II, Sections 2, 4).
The NSSTA Board believes that activities that are incompatible with NSSTA's mission
include (but are not limited to) the following, whether undertaken directly or
through an affiliated entity -
1. Actively soliciting and promoting structured settlement factoring transactions
to individuals who are receiving periodic payments under structured settlements.
Under such factoring transactions, the rights to future periodic payments under
the structured settlement are purchased from the recipient in exchange for a
discounted lump sum, resulting in the partial or complete dissolution of the
structured settlement and depriving injury victims and their families of the
financial security that structured settlements are designed to provide.
Involvement of a NSSTA member or its affiliates in actively soliciting
and promoting liquidation of structured settlements through factoring
transactions impairs NSSTA's credibility, and consequently its effectiveness, in
advocating the use of structured settlements to provide long-term
2. Sharing information and documentation about existing structured
settlements with, or using such information to solicit factoring transactions
for, an entity engaged in structured settlement factoring transactions with respect to individuals receiving payments under structured
3. Using the status of NSSTA member and access to NSSTA communications channels to promote and facilitate structured settlement factoring transactions.
4. Selling payee names/addresses or other identifying information to an entity engaged in structured settlement factoring transactions.
Engaging in or promoting the marketing or distribution of payment rights previously acquired in a structured settlement factoring transaction.
Under Article II, Section 6 of the Bylaws, a NSSTA member can be suspended or expelled
from membership in the Association for good cause, including the failure to
remain eligible under the Association's membership qualifications. Because
activities of the type described above are inconsistent with the
membership qualifications, engaging in those activities can lead to suspension
or expulsion from membership and to denial of new membership
applications. NSSTA's sole intention here is to uphold the standards for
membership in the Association to assure consistency with its mission. NSSTA has
no intention to prescribe, control, or influence the decisions by individual
members as to their own respective business policies and activities; it will
continue to be up to each individual member to make such business decisions as
that member sees fit.
NSSTA has had a long record of success in promoting the establishment and preservation of
structured settlements to provide long-term financial security to injury victims
and their families. NSSTA's credibility as an organization is at the very heart
of its ability to publicly advocate the benefits of structured settlements to
Federal and State governmental officials, the disability community, the trial
bar, judges and mediators, and the claims community. Accordingly, we believe
that continuation of the membership policy confirmed in this letter is essential
to NSSTA's ability to advance this critical mission in the years
I am pleased to see that NSSTA has finally stepped up , via this NSSTA Board of Directors, and attempted to address these issues.
Will they rise to a level greater than paper tiger? Despite plenty of evidence and chatter that activities have been ongoing there has been no expulsion of members in the time I have been a member. I previously emailed the NSSTA Board of Directors several years ago suggesting that a member, who actually served on two important NSSTA committees, be expelled for overtly promoting factoring and was told that no procedures were in place to handle it and with mumblings about a personal agenda.
Having been an NSSTA member for more than 20 years I am generally supportive of what NSSTA is doing in this regard. Yet it doesn't seem to be fully thought through in my personal opinion.
Judging by the number of calls I've received, it appears that there has been significant industry discussion in the days since the NSSTA memo
One prominent industry member, who asked that I not publish his name, reacted by asking if it was discovered that one of the life insurers issuing structured annuities purchased securitizations from a factoring company what would happen? He also asked what about one that distributes its product through a company that owns a factoring company?
Is someone who gets a call from an annuitant and after a triage of the situation determines that there is no other alternative for the annuitant, who refers someone to a factoring company or three, violating the Bylaws, even if for no compensation?
Some even feel that this will be watershed moment that leads to an exodus from NSSTA. I'm not making it up, just reporting what I've been told. Will it or won't it? Let's see. Some say it well help the SSP, which as a trade association chooses to slice the apple a little differently.
There is an overall greater acceptance of factoring throughout the industry and among lawyers who represent injured plaintiffs. Instead of attacking factoring itself how about advocating and following through on bi-lateral industry standards? I've been calling for regulatory reform for years. As we stand today the primary side of the market is subject to intense regulation and the factoring side is not. This is the root of the perception problem. The lack of regulation allows factoring companies, factoring brokers and their marketing alter egos to call structured settlement payment rights "annuities" when sold to investors and fosters an environment that permits some to effectively circumvent advertising prohibitions in insurance regulations. The lack of regulation allows, for an extreme example that I reported on, a company to tastelessly promote itself on video with the message by selling your payments to it, you can get a pair of fake breasts.
I don't think there is anyone in the structured settlement industry who has been more openly critical about the factoring industry business practices than John Darer in the last 5 1/2 years. But I can tell you this, I have reached out to executives in the factoring industry to get to know them a little better in the hopes that through an open dialogue that we can solve this problem bi-laterally. I also I was invited to appear on a panel in November 2010 at that industry's annual meeting in which I gave critical commentary about the industry's practices and what I thought made sense for them to do. Is that promotion? No that's smart business. If you don't have an open dialogue in whch you ask questions of your neighbor and let him ask questions of you, he's going to continue be a nuisance.
Consider the following scenarios as illustrative examples of why standards are needed:
I have in my possession a copy of a transfer petition in which a structured settlement transfer was initiated within 2 months of the execution of the Settlement Agreement and Release. The transfer petition shows that the annuitant lost $377,000 in future benefits for $150,000 in cash. According to the annuitant, the transfer was initiated with a referral to a factoring company by the same structured settlement broker who sold the annuity in the first place. Moreover, because the structured settlement protection act in the transfer state does not require commission disclosures or an effective discount rate we may never know if a commission was demanded, offered, paid and/or received.
I understand that there are members of the industry, not necessarily members of NSSTA, who write annuities on the primary side, originate structured settlement factoring transactions and then sell them to others. They work all sides of the equation.
In addressing the marketing of structured settlement payment rights to investors. has NSSTA gone too far? When I started researching that market for blogs and video podcasts in 2009 and 2010, I was startled to learn that one of the vendors in that space was selling such rights to attorneys for the attorney's pension plan. Clearly not every plaintiff attorney is horrified by the other industry segment. There are clearly some positive financial planning applications for those (1)who have the capability to understand the transaction and (2) who understand and can accept the risks of the lack of statutory protection, that have been fleshed out in the ELNY liquidation proceedings. The latter in particular concerns me when a discussion ensues about the use of these vehicles for injury victims. The lack of inventory raises concerns for some NSSTA insiders that purveyors of these products will seek annuitants who might not otherwise think about selling, to help replenish supply.
While I applaud the NSSTA Board for making a good attempt, kicking out a few members will not stop factoring, or the marketing of structured settlement payment rights anymore than efforts to curtail life settlements elsewhere have stopped that activity. I certainly hope it stops the selling of lists by the few misguided fools who are doing it, or offering to do it. What is needed is industry standards that take into account the new reality.