Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Factoring Pharoahs Won't "Let The People Go!"

by Structured Settlement Watchdog

Remarketing of structured settlement annuitants who have sold a portion of their structured settlement to a factoring company is big business, particularly to those that also service structured settlement payments. Remarketing carries a much lower acquisition cost than new business.

 Refresher on Servicing of Structured Settlement Payments

As the structured settlement watchdog, John Darer, has previously covered in this space, servicing of structured settlements is necessary when an annuitant only sells a portion of their payments, because many life insurance companies will not split structured annuity payments. When payments are being service the annuitant is frequently denied access to the life insurer for routine requests such as change of bank account, change of beneficiary and change of address and must instead deal with the servicing company. As has been corraborated by Dallas bankruptcy expert attorney Bruce Akerly, and the sitting general counsel of the National Association of Settlement Purchasers, in the extreme scenario involving the Chapter 7 bankruptcy of the servicer, the annuitant may experience delays and additional costs to protect their rights to the payments.

The structured settlement watchdog was distrurbed to hear from a source that some factoring companies are remarketing the structured settlement annuitants they service at less attractive rates than being offered on the open market.

Presented with the lower discount rate alternatives (better for annuitant) we have learned that some factoring companies are actually fighting their annuitants in Court hearings. This purportedly is occurring even though the payments haven't been transferred.

The other day RSL Funding issued a press release alleging that Imperial Holdings is suing their competitors who are offering lower rates. If this were true the litigation does not appear to be listed in its S1-A. Imperial is not the subject of the information provided by our source, but is this a coincidence that helps frame anti-consumer behavior by servicing factoring companies?

It's a subject that deserves further exploration and believe me we will, BEFORE it reaches biblical proportions.  

We kick off our quest for the truth with this memorable ballad from "Satchmo". If you are one of the "Pharoahs" concerned we hope you will pay attention.

 

 

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"

Impact of An Annuity Servicer's Bankruptcy on Annuitant? Structured Settlement Buyer?

by John Darer CLU ChFC CSSC RSP

In Bruce Akerly's paper "The Impact of An Annuity Servicer's Bankruptcy On The Rights Of The Annuitant and The Structured Settlement Purchaser"  (Download Nasp-conf-seminar-paper-on servicing-bankruptcy-Bruce Akerly),  Akerly addresses and expands on the issues raised  in the following blog Structured Settlements 4Real posts (attached in Appendix B to the paper):

Structured Settlement and Factoring Camps Go "Ostrich" on Structured Settlement Servicing!  October 6, 2009

Bankruptcy of Structured Settlement Servicing Company  October 10, 2009

and discussed in the 3 videos contained in the blog post immediately preceding this one.

In my opinion, those settlement planners who insist that a discussion of factoring is part of the settlement planning process have a duty to cover the servicing issue with the plaintiffs and the attorneys they are advising. How about having them try a copy of Bruce Akerly's paper on for size? 

Are they more or less likely to consider a structured settlement?  Are they more or likely to enter into a structured settlement factoring transaction?  Just for "S"s and "G"s, compare the financial strength and size of Metropolitan Life with any factoring company or servicing company of your choosing.

For the decision makers at the three annuity issuing life insurance companies (referred to, but not named by Andrew Cravenho in this post). Is it time to consider a better solution?  At the very least this author opines that the annuity issuers should provide full disclosure to their agents and brokers about whether not they will dice or split payments if the structured settlement is subsequently partially factored.

Poigant quotes from Bruce Akerly's paper (p21)-comments in parentheses

• "The only loss suffered would be short delay in receipt of payment occasioned by bankruptcy"  (short is relative to someone who depends on the income)

• " An annuitant may require the assistance of counsel"   (At what cost?)

• " Again all payments should either have been paid to the annuitant in the interim or will be held pending agreement of the parties and/or order and direction of the court".  (how long is THAT going to take; and see comment to first quote)

Note: Underlines for emphasis

Vig Payments Needed For "The Blessing" of Structured Settlement Servicing Company?

The plot continues to thicken at the expense of those who enter into structured settlement agreements, who later have an immediate need for cash and have exhausted other options.

It is looking more and more from our research that the majority of structured settlement annuity issuers refuse to split annuity payments (i.e. pay to more than one party) when there is structured settlement factoring transaction. This practice is a relic of the days before structured settlement protection acts.

The only logical explanation is for the life insurance company to save administrative costs. There seems to be no benefit to its insured/annuitant, other than as the only current solution to the problem of someone who WANTS TO MINIMIZE the erosion of their long term financial security. In other words the annuitant wants to keep as much of their structured settlement intact as possible.

The refusal to split payments under such circumstances contradicts established life insurer business practice which often results in structured settlement payments to multiple parties in the same case (e.g. members of a family in a wrongful death case, or where a portion of payments go to a trust for a period of years and another go to an individual).

With a servicing agreement the result is that the entire annuity payment goes from the annuity issuer to the servicing factoring company. My two part podcast to be released by LBN shortly deals with the question of what happens in the event of Chapter 7 bankruptcy of the servicing company. Now we've got another issue. 

Our sources tell us that factoring companies that service structured settlement payment sometimes include right of first refusal clauses, which give the servicing factoring company right of first refusal on subsequent structured settlement buyouts. I've been told that in some cases there is a need for money to move from any competitor of the servicing factoring company "to get their blessing" in order to override the first refusal. Clearly this presents a problem for two reasons (1) acts as a potential barrier to a better offer, for an individual with a legitimate subsequent cash need (2) adds to the cost of the second transaction. There is a question as to whether what amounts to a vig payment is disclosed.

I know that I count many representatives of life insurers among my readers. I hope you are reading this post. The "powers that be" need to consider what happens "the morning after" there is a refusal to split payments.

Structured Settlement Payment Servicing | Structured Settlement and Factoring Camps Go "Ostrich"

by Structured Settlement Watchdog®

Does the silence mean that neither the structured settlement industry or factoring industry give a crap about the structured settlement "servicing" question? Or is there something to hide?

On August 12, 2009 I asked 

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

Also see Wikipedia entry on Controversy About Servicing of Structured Settlement Payments By Factoring Companies

How Would the Bankruptcy of a Structured Settlement Factoring Servicing Company Affect You?

For those that sell only part of their structured settlement payments to factoring companies, what needs to be addressed is what effect the bankruptcy of a factoring company "servicing company" would have on the payee, with respect to the payments being serviced. Until this issue is decided, payees who are considering partial structured settlement transfers should be wary about participating in "servicing agreements".

The National Association of Settlement Purchasers (NASP) holds their annual meeting each Fall around this time. 

Why doesn't NASP come out of the closet on this issue?

1. Confirm whether or not servicing agreements are necessary because certain life insurance companies that issue structured settlements will not split payments
2. Reveal the names of the structured annuity issuers who some of you allege will not split structured annuity payments, if this is indeed true.
3. Issue a public statement that answers the operative question of what happens in the event of bankruptcy of the servicing company.

Frankly if members of my industry are the cause of this problem I want to know about it, the majority of my industry needs to know about it, and the problem needs to be addressed.

Ostrich Gallery
   Ringing them by the neck!                            

Life Company Ostrich dancing on issue?

  NASP Board Ostrich? 

NSSTA Board of Directrich?

"Patrick Hindrich"  Inert on Servicing . 

                               

 

Structured Asset Funding and the Servicing of Structured Settlement Payments

by Structured Settlement Watchdog®

Structured Asset Funding, the purchaser of a portion of CT woman's structured settlement payment rights (and the servicer of the rest) can't give the CT woman a definitive time each month when she can expect to receive the structured settlement payments that she didn't sell. The CT woman tells me that when the payments were coming directly from American International Life Assurance Company of New York they were on time. The issue is that Structured Asset Funding must receive them and then turn them around. This inevitably results in a delay that means that payments are not made in accordance with the date set forth in the settlement agreement.

Audrey Nadler, the SAF representative has informed the CT woman that SAF is trying to find a solution by applying for a credit line that purportedly should improve turnaround time on serviced payments. If it can be put in place SAF can advance the payments a few days ahead so that the structure payments arrive the same day they would have if the servicing agreement were not in place. It was related to me that Audrey Nadler purportedly said that such credit line, if approved, would not be put in place until at least October. Until it is put in place, if it actual is put in place, there is no definitive date each month when the CT woman can expect the payments. One must presume the same holds true for cases serviced by cash now pusher Structured Asset Funding as well as the cash now pusher's own clientele.

I write this so that my industry brethren, particularly the insurance companies see the result of  allegedly not splitting payments.

Please consider the following:

1. Regardless of the factoring company, with a servicing agreement the annuitant is more susceptible to approach by factoring company to sell more payments.
2. There is a HUGE lost branding opportunity for the insurance company, whose name and possibly logo would otherwise be on every check, on every envelope every month, or each time a structured settlement payment is made to an annuitant. How does that value compare with the administrative savings of not splitting payments?
3. Lost cross sell/service opportunity. Other services that the company offers may not reach the consumer because the factoring company has control of the payments. What else do many factoring companies offer to a structured settlement recipient except more cash in 60-90 days, if lucky? How does that value compare with the administrative savings of not splitting payments?
4. Still no answer to the important question of what happens if the servicing factoring company goes Chapter 7, insolvent or is otherwise financially impaired. This afternoon I wrote to primary representatives of all A.M. Best rated A, or better rated insurance companies that currently write structured settlements (except Symetra) and copied the letter to the leaders in both the National Structured Settlement Trade Association and the Society of Settlement Planners. I have asked those life insurance companies to comment on their current business practices and to inform their appointed brokers. This question must be answered to permit structured settlement brokers and settlement planners to provide comprehensive advice to their clients.
5. What duties and responsibilities do those settlement planners who insist on IRC 5891 language (so called "factoring enabling language") in releases have,  to inform their clients at the time of settlement of what servicing is all about, to gain an understanding of the business practices of all the insurance companies they may be recommending before they make recomendations and to inform clients what it would mean to them if they later find themselves in urgent need of cash, with no other alternative but to go to a cash now pusher?

I leave you with a comment left by Registered Settlement Planner Chuck Derenne of Premier Settlements to my previous post about the allegations of Matt Bracy of Settlement Capital as to the root cause for servicing.

"John,

I commend you on proactive concerns regarding the servicing of "partial factoring transactions", especially with regard to potential bankruptcy proceedings affecting said factoring purchasers.  Even though I am one of the first 50 or so structured settlement professionals in our industry, I was blindsided by the statistics you quoted with regard to the frequency with which structured settlement recipients factor their payments.  While I have no knowledge of the life companies' policies regarding the servicing and/or "split-servicing" of periodic payments, it causes me deep concern to wonder whether the injury victims whom I have counseled will lose the ability to be in direct contact with either myself and/or the annuity carriers with which I have placed their settlement recoveries.

As you know, I am not an expert in bankruptcy laws but I am very much interested in learning what my clients' rights will be should a factoring company which assumes servicing responsibilities file for any form of "bankruptcy". 

Again, I commend you for your proactive concerns with regard to this issue and I hope all stakeholders give this matter their most serious and immediate attention.

Chuck"

N.B. Underlines added for emphasis

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 to air the dirty laundry. We all know that structured settlement servicing exists. 

What is Payment Servicing?

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.

Why are there structured settlement servicing agreements?

• 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.

What are the consequences to the structured settlement payee who has sold just part of their payments, if the payment servicing company is later bankrupt when it controls 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.