Structured Settlement Transfer Disclosures Are Useless Without Effective Discount Rate

by Structured Settlement Watchdog

Structured Settlement Transfer Disclosures Without an Effective Discount Rate Are Useless

Oklahoma Woman Shafted When Settlement Purchaser Takes More of the Present Value Than She Does

I'm reviewing a November 2016 structured settlement transfer involving a Shawnee Oklahoma woman who was shafted when the structured settlement factoring broker shamelessly took more out of the deal than she did.  The woman sold $1,893,964.91 in future payments for a lump sum of $380,641.46.  Our sources tell us, using TValue software to make the calculations, that the effective discount rate on the deal was approximately 11.8%, which meant that the settlement purchase baked in an undisclosed profit of about $420,000,  about $40,000 more than the Oklahoma resident was paid for the pillaging of her structured settlement payments. At a 6% cost of money and an effective discount rate of well under 10%, our sources say that even with a factoring company being a little greedy the woman could have received $650,000.  An effective discount rate is a real rate that takes into account baked in costs and charges that are implicit in the net amount to be paid to the selling annuitant.

Comparison Between Selling Structured Settlement and Alternative Sources of Financing Harder Without Effective Discount Rate

Part of the requirements of state structured settlement protection acts are mandatory disclosures. In this Oklahoma case the petition attached structured settlement transferring disclosures from both Oklahoma and Connecticut, the latter due to the fact that the annuity issuer and qualified assignment company (Hartford Life Insurance Company and Hartford CEBSCO) are based in Connecticut.  Each structured settlement transfer disclosure only included a statutory discount rate which has absolutely no bearing on what the annuitant is receiving. The statutory rate on both disclosures was 1.6%  It is absolutely useless and does not enable an annuitant who is contemplating selling the ability to compare with other sources of financing. While some annuitants are not sophisticated many can grasp the concept of comparing rates, if that rate is a real rate. 

Disclosure of Effective Discount Rate Should Be Mandatory in Every State

In my opinion any state structured settlement protection act, including my home state, that does not require the disclosure of the effective discount rate on structured settlement transfers is not adequately serving its citizens.   Some but not all states require disclosure of effective discount rate on structured settlement transfer disclosures.

The fact that a settlement purchaser can set utilize opaque pricing while not giving possibly unsophisticated citizens (and the judges who have a legal duty to determine if the transaction is in their best interest),  the tools to make comparisons is an outrage.