by John Darer CLU ChFC MSSC CeFT RSP CLTC
In Structured Settlement Sales and Lead-Poisoned Sellers: Just Say No”, University of Maryland Law Professor Karen Syma Czapansky questions whether courts should permit sales of periodic payments under a structured settlement when the structured settlement is compensation paid by the defendant in a tort suit brought by or on behalf of the seller for damages caused by childhood lead poisoning that left the seller incapable of self-support. Professor Czapansky concludes that allowing sales in this situation is unjustifiable and opines that the Maryland SSPA should be amended to ban the sale of structured settlements by lead-paint victims, just like workers compensation recipients. (36 Va. Envtl. L. J. 1)
Four Issues Professor Czapansky Raises in Reaching Her Conclusions
- Current structured settlement factoring law gives the parent no opportunity to have a say about a sale of structured settlement payments, even in cases where the parent agreed to a bar on the assignment of the benefits and where the parent is likely to become responsible for the care of the seller who spends a lump sum improvidently.
- Whether lead-poisoned sellers can be protected from being exploited by factoring companies that arrange for sales of structured settlement benefits without spending an undue amount of taxpayer resources to provide public supervision of the transactions.
- While converting an income stream to a lump sum is desirable in a limited number of cases, judicial procedures adequate to the task of discriminating between desirable and undesirable sales would be costly compared to the usual lack of benefit to potential sellers.
- Improvident sales unfairly impose costs on taxpayers, communities and parents, even though both the government and, in most cases, parents, expend resources establishing the structured settlement as a reliable source of support for the sellers.
Three alternatives to a straight ban discussed by Professor Czapansky
- Treat the sale of a structured settlement the same as other contracts by eliminating the favorable tax treatment and the judicial review
- Allow a Lead-Poisoned Recipient of a Structured Settlement to Sell Income Stream and Favorable Tax Treatment after Review by a State Court
- Prohibit the sale of structured settlement payments without the consent of a limited guardian of the property (periodic payments). No sale could be approved unless the factoring company convinced the guardian to approve the sale. Unlike the usual seller, especially one with a history of lead poisoning, a person named as guardian of property should have experience and understanding in financial transactions to make well-considered decisions on behalf of the person under guardianship. The guardian is also under a duty of loyalty, which should preclude the guardian from making a sale for reasons other than the well-being of the person under guardianship. Finally, guardians are subject to judicial supervision and other protections such as bonding and liability for failure to act properly.
Other salient points brought up by Czapansky
- Failure of Judges to See Their Role as Protective
- Factoring Company Success Rate Shows How SSPAs are Inadequate
"Mississippi Burning" on Current Structured Settlement Protection Acts
It's Your Money and We Want It Now: Regulation of the Settlement Factoring Industry in the Era of Dodd-Frank and the Consumer Financial Protection Bureau 86 Miss. L.J. 151, 173-75 (2017) by Alexander Ash.
"Calls for reform in the structured settlement factoring industry have recently grown louder across the nation. However, those calls ring hollow and many recipients of structured settlements are suffering abuses at the hands of the structured settlement factoring industry. Structured settlements substitute a lump-sum award with periodic payments, protecting against spendthrift behavior. The purpose of a structured settlement is to provide an income stream for the long term care of an injured party, and by “factoring,” often at a heavily discounted rate, the rights to future payments form the settlement leads to this purpose being completely undermined.
The Missisippi law professor suggests a comprehensive approach enhancing existing protections, and layering in new federal regulation will advance the purpose of the structured settlement. Three solutions to protect the purposes of structured settlements and minimize unwanted outcomes in structured settlement factoring transactions. These include (1) increasing existing standards of review, (2) creating three protected “classes” of structured settlement recipients, and (3) regulating structured settlement factoring on an industry-wide scale with the Consumer Financial Protection Bureau. These proposals do not call for sweeping changes, but instead using existing mechanisms to protect the goals of structured settlements, as well as the recipients of structured settlements"
" Blue Bayou"
Indeed in the next state over, Louisiana's structured settlement protection laws could do with a little beefing up. A 2016 predatory deal, concocted by a personal injury lawyer in a position of superior knowledge and trust, may have taken financial advantage of a personal injury client a little more that one year after placing him into a large structured settlement, by entering into a structured settlement factoring transaction using an offshore company controlled by the lawyer and shafting his client for in excess of $1 million spread, in an awful deal that bore an effective discount rate in excess of 22% when a fair cost of money would have been less than a third of that amount. The documents submitted to Acadia Parish (twice) each contained false representations to the Court as to the discount rate and the documents in public record show the client's and his wife's social security numbers in plain text. An attempt was then made to pawn of the cash flows to other settlement purchasers for a profit through an intermediary. Read Personal Injury Lawyer Buys Client's Structure 1 Year After Settlement and Shafts Client in Awful Deal and Houston Plaintiff Lawyer's Company's Purchase of Client's Structure | "Crossing The Streams" for more details.