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Structured Settlement Servicing By Factoring Companies Redux

by John Darer CLU ChFC MSSC RSP CLTC

Settlement Capital's Matt Bracy aired the 2nd in a two part series "The Problem With Factoring" on the Legal Broadcast Network (LBN) and does an excellent job addressing the subject of servicing of structured settlement payments by factoring companies. This author, John Darer, aired a 2 part series on the subject of factoring company servicing of structured settlement payments in October 2009 on LBN.

Key points

1. Servicing is a chore for factoring companies caused ostensibly by the unwillingness of SOME structured annuity insurance companies to split payments when the annuitant is not selling all of their structured settlement payment rights. The end result is that as a result of some of the annuity issuers' unwillingness to split payments, annuitants heir clients WILL NOT BE RECEIVING THEIR PAYMENTS DIRECTLY FROM THE ANNUITY COMPANY ANYMORE. They will be dealing with the factoring company.
2. Many state structured settlement protection laws essentially state that the annuity issuer CANNOT be forced to split the payments.
3. Bracy validates my servicing question and states that while insolvency of the factoring company may result in the annuitant ultimately getting their payments, there "surely will be a delay and there may be costs involved" to the annuitant..The same conclusion that TX lawyer Bruce Akerly and I reached in October 2009.
4. Bracy states that some, but not all companies have back up servicers. His does.
5. Bracy states the good news is that there has yet to be an insolvency. The same perhaps could be said of structured settlement issuing companies prior to 1991. We all now know the effect of Executive Life. Sufficed to say that many of the insurance companies issuing the annuities have billions more assets than any of the factoring companies.
6. Sellers of structured settlement payment rights should be looking closely at the documents. Common sense. (1) Beware of attempts to bind you into a right of first refusal to the servicing factoring company (2) Check for any fees charged for the servicing (3) Check for back up servicing (or bonded 3rd party servicers (as suggested by Andrew Cravenho)
7. In a nod to John Darer's relentless attack on what is in his opinion the questionable business practice of Structured Asset Funding, LLC suggesting in its advertising, that fancy sports cars and boats are a reason to sell structured settlement payment rights, interviewer Scott Drake questions the ethics of such practice. Bracy emphasizes that each structured settlement factoring transaction requires court approval and he doesn't believe that anyone would have the guts to seeks Court approval using a boat or fancy sports car as part of the "best interest" prove up. Coincidentally Structured Asset Funding's website has been disabled at the time of this writing. Stay tuned!

View "The Problem With Factoring 2-Servicing"

View Structured Settlement Servicing Agreements-Good Or Bad  Part 1 Oct. 2009

View Structured Settlement Servicing Agreements-Good Or Bad For Annuitant? Parts 2A and 2B (with Bankruptcy Expert Bruce Akerly) October 2009

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Links and Exhibits of Interest

• Wikipedia entry for Structured Settlement Factoring Transaction entitled "Controversy Concerning "Servicing" of Structured Settlement Payments By Factoring Companies" 
• John Darer's August 10,2009 email to NSSTA President Dan Durbin and President Elect Mike Kelly copied to the NSSTA Board of Directors and other industry notables. Download 8-10-2009 email to NSSTA President Durbin and President elect Kelly with copies to Board members and othersThe content is self explanatory. The NSSTA has not responded to this author or addressed this issue with its membership.  WHY? NSSTA members include life insurance companies, among them those who do not split structured settlement payments.
• Our August 17, 2009 post Matt Bracy Says That Structured Settlement Servicing Is The Fault of The Life Insurance Companies Issuing Structured Settlement Annuities.  Only one life insurance company responded!
• Our April 23, 2008 post "Factoring Company "Servicing" of Structured Settlement Payments-Thought Leaders Butt Heads"

Peach Holdings Gets S&P Upgrade to CCC+ (Outlook Negative), Senior Secured to CCC-

by Structured Settlement Watchdog®

Standard & Poors  issued new credit ratings on Peach Holdings, the parent of cash now pusher Peachtree Settlement Funding on August 26, 2009.

As stated on the Standard & Poors website, an obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business,financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

This author would never suggest anyone sell their structured settlement payment rights to Peachtree Settlement Funding in the first place.

1. The company has engaged and continues to engage in false advertising. Simply read the tab on Peachtree Settlement Funding to the right of this blog for our archive.
2. The company does not have a reputation for competitive discount rates. While riding the gravy train, Peachtree charged rates in the mid to high teens when others were considerably lower. Great for investors, sucks for consumers  with structured settlements in need of the type of service Peachtree and others offer.
3. Upon information and belief the company engages in the servicing of structured settlement payments.

Questions

• Should annuitants whose payments are being serviced by Peachtree Settlement Funding be worried?
• Should any life insurance companies who entered into servicing agreements with Peachtree Settlement Funding be rethinking their strategy not to split payments?
• At one point Peachtree Settlement Funding was a member or sponsor of the Society of Settlement Planners ( see Download Peachtree Still in SSP 10-10-2006 Google)  Did any SSP members refer their clients, or any annuitant to Peachtree Settlement Funding during the time that Peachtree was a member of the SSP, or at any other time?
  
• Given that the S&P ratings for Peachtree , the JG Wentworth "close call" and the fact that business inevitably ends up in servicing agreement,  doesn't the SSP and/or those members of the SSP feel it might be a good time to legally determine what happens to their client in the event the servicer goes belly up?
  

"Peach's funding options remain strained because the company has no access to revolving warehouse lines.The outlook is negative, reflecting the company's funding of new originations with forward flow arrangements"  Standard & Poors (on Peach) August 26, 2009

Who Will Answer the Question on Structured Settlement "Servicing" by Factoring Companies?

This is an open letter to the factoring industry AND the structured settlement industry

We all know that structured settlement servicing exists.  Servicing arises where an annuitant sells a portion of the payments rights and through a contractual arrangement ("servicing agreement") the factoring company receives the entire structured settlement payment (not just the sold portion) and passes the difference onto the annuitant. Under such circumstances the annuity issuer may refuse to speak with the annuitant because of the servicing agreement and directs calls to the factoring company. Moreover there may be a delay in the receipt of such payments by the annuitant because the payments must first pass through the factoring company.

The question is WHY? Why are structured settlement servicing agreements done?

• One of the allegations is that Life insurance companies WILL NOT split structured settlement payments. If this is true then it may be an incredibly poor PR move in need of correction. Who has experienced this and from which life insurance companies? Which current writers of structured settlement annuities are involved, if any?

• The contrary allegation is that factoring companies do this to control the pipeline for the next factoring deal, cutting down on marketing expense and further to wall off competition.

Will someone speak up concerning the consequences to the annuitant in the event of bankruptcy or insolvency of the servicing factoring company where the factoring company in essence comtrols receipt of all of the annuitant's structured settlement payments? This question must be answered before its too late.

This author welcomes statements from both the structured settlement industry and the factoring industry.