by Structured Settlement Watchdog
North Carolina HB 845, submitted April 24, 2023 by NC House Representative Chris Humphreys of Raleigh, is an act to update the North Carolina Structured Settlement Protection Act to align with the most recent version of the Model State Structured Settlement Protection Act approved by the National Counsel of Insurance Legislators (NCOIL).
Registration Required, with Department of Insurance.
"§ 1-543.11A. Registration required.
(a) A person shall not act as a transferee, attempt to acquire structured settlement payment rights through a transfer from a payee who resides in this State, or file a structured settlement transfer proceeding in this State unless the person has registered with the Department of Insurance as a structured settlement purchase company. A registered structured settlement purchase company shall renew its registration annually, on or before the renewal date required by the Department 1iment of Insurance, and provide the certifications set forth in this section. The Department of Insurance may adopt rules as necessary to implement this section and may set and charge to each registrant a fee to offset the costs of processing and maintaining the registration required by this section.
- The few states that require registration put the Secretary of State in charge. The Department of Insurance is the most logical regulator to put in charge of oversight. In other states, such as Connecticut, the Department of Insurance regulates life settlements. Why not structured settlement factoring, given that financial advice is being given regarding the replacement of payments funded with an insurance product with cash? Replacement disclosures are required when life insurance policies are replaced as well. Licensed insurance agents and brokers Individuals and companies) are the ONLY route to the placement of structured settlement annuities. Time for symmetry in regulation of life settlements and structured settlement factoring.
- HB 895 introduces the defined term "Structured Settlement Purchase Company"as "a person that acts as a transferee in this North Carolina and who is registered with the North Carolina Department of Insurance pursuant to G.S. 1-543.11A. Technically the buyer is buying the structured settlement paymemt rights. not the structured settlement itself, or the structured settlement annuity that funds it. One hopes that some consideration will be given to the use of terms consistent with "structured settlement factoring transaction" (i.e. structured settlement factoring company)
Surety Bond Requirement
(b) To protect payees who do business with a structured settlement purchase company, a structured settlement purchase company's initial registration shall be submitted on a form prescribed by the Department of Insurance and shall include a sworn certification by an owner, officer, director, or manager of the registrant, if the registrant is an entity or by the registrant if the registrant is an individual, certifying that the registrant has secured a surety bond, been issued a letter of credit, or posted a cash bond in the amount of fifty thousand dollars ($50,000) relative to its business as a structured settlement purchase company in this State. The following provisions apply:
(1) The bond shall be payable to the State of North Carolina.
(2)The surety bond, letter of credit, or cash bond shall be effective concurrently with the structured settlement purchase company's registration with the Department oflnsurance and shall remain in effect for not less than three years after the expiration or termination of the registration. The surety bond, letter of credit, or cash bond shall be renewed annually with the registration.
(3) The registrant shall submit to the Department of lnsurance a copy of the surety recovery for the payee should a payee recover a judgment against a structured settlement purchase company for a violation of this Article.
(4)The surety bond, letter of credit, or cash bond may provide a source forrecovery for the payee should a payee recover a judgment against a structured settlement purchase company for a violation of this Article.
(d) Within 10 days after a judgment is secured against a structured settlement purchase company by a payee, the structured settlement purchase company shall file a notice with the Department of Insurance and the surety. The notice shall include a copy of the judgment, the name and address of the judgment creditor, and the status of the matter, including whether the judgment will be appealed or has been satisfied.
(e) Neither the bonded structured settlement purchase company nor the surety shall cancel or modify the bond during the term for which it is issued, except with written notice to the Department of Insurance at least 20 days prior to the effective date of a cancellation or modification.
(f) In the event of a cancellation of the bond, the registration of the structured settlement purchase company shall automatically expire unless a new surety bond, letter of credit, or cash bond that complies with this section is filed with the Department of Insurance. The cancellation or modification of a bond does not affect any liability that the bonded surety company incurred before the cancellation or modification of the bond.
Investors Not Required to Register
(g) An assignee is not required to register as a structured settlement purchase company in order to acquire structured settlement payment rights or take a security interest in structured settlement payment rights that were transferred by the payee to a structured settlement purchase company.
(h) An employee of a structured settlement purchase company acting on behalf of the structured settlement purchase company in connection with a transfer is not required to register. NOT GOOD!
North Carolina legislators should pay attention. Anyone who speaks with a structured settlement annuitant should be properly schooled about more than a sales pitch with a "pennies on he dollar: value proposition, There needs to be a standardized way of testing that knowledge as well as guardrails that spell out what is not permissible.Examples of what should not be [permissible in my opinion are (1) impersonating representattives of insurance companies (2) offering non guaranteed investment projections as am inducement for annuitants to sell their payments. One Florida entity spawned a legion of practitioners who have been working with a financial adviser using unreasonble projections to induce transfers. It is now a forseeable danger for a decade. One that I saw and blogged more recently about had an inducement of a 12% projected rate of return that upon closer examination. failed to take into account income taxes or volatility in a New York petition that failed to impress a Niagara County New York judge. Monte Carlo analysis anyone? Not familiar with Monte Carlo anlaysis? Consider reading this Monte Carlo Simulation/Analysis in Structured Settlements and Settlement Planning Process (4structures.com)
(i) A transfer order signed by a court of competent jurisdiction pursuant to this Article constitutes a qualified order under 26 U.S.C. § 5891 unless the transferee to which the transfer order applies is not registered as a structured settlement purchase company pursuant to this section at the time the transfer order is signed, in which case, the transfer order does not constitute a qualified order under 26 U.S.C. § 5891.
"§ 1-543.11B. Prohibited practices; private right of action; penalties.
(a)A transferee, structured settlement purchase company, or an employee or other representative of a transferee or structured settlement purchase company shall not do any of the following:
(1)Pursue or complete a transfer with a payee without complying with this Article.
(2) Refuse or fail to fund a transfer after court approval of the transfer.
(3) Acquire structured settlement payment rights from a payee without complying with this Article and obtaining court approval of the transfer in accordance with this Article.
(4)Intentionally file a structured settlement transfer proceeding in any court or with any administrative authority other than the court or administrative authority specified in G.S. 1-543.14, unless the transferee is required to file in a different court by other law. (Anti Forum Shopping)
(5)Except as otherwise provided in this subdivision, pay a commission or finder's fee to any person for facilitating or arranging a structured settlement transfer with a payee. This subdivision does not prevent a structured settlement purchase company from paying any of the following:
(a) A commission or finder's fee to a person who is a structured settlement purchase company or an employee of a structured settlement purchase company.
(b) Routine transfer expenses to third parties, including court filing fees, escrow fees, lien recordation fees, judgment and lien search fees, attorneys' fees, and other similar types of fees relating to a transfer.
(c)A reasonable referral fee to an attorney, certified public accountant, actuary, licensed insurance agent, or other licensed professional advisor in connection with a transfer.
Commentary: Licensed, licensed, licensed, sounds like a nice improvement!
(6) Intentionally advertise materially false or misleading information regarding its products or services.
(7) Attempt to coerce, bribe, or intimidate a payee seeking to transfer structured settlement payment rights.
Commentary: Efforts to compromise structured settlement annuitants by some structured settlement factoring industry partcipants may not have been limited to payees.
(8) Attempt to defraud a payee, any party to a structured settlement transfer, or any interested party in a structured settlement transfer proceeding by means of forgery or false identification.
(9) Except as otherwise provided in this subdivision, intervene in a pending structured settlement transfer proceeding if the transferee or structured settlement purchase company is not a party to the proceeding or an interested party relative to the proposed transfer that is the subject of the proceeding.This subdivision does not prevent a structured settlement purchase company from intervening in a pending structured settlement transfer proceeding if the payee has signed a transfer agreement with the structured settlement purchase company within 60 days before the filing of the proceeding and the structured settlement purchase company that filed the proceeding violated any provision of this Article in connection with the proposed transfer that is the subject of the proceeding. (Anti-Poaching)
(10) Except as otherwise provided in this subdivision, knowingly contact a payee who has signed a transfer agreement and is pursuing a proposed transfer with another structured settlement purchase company for the purpose of inducing the payee into cancelling the proposed transfer or transfer agreement with the other structured settlement purchase company if a structured settlement transfer proceeding has been filed by the other structured settlement purchase company and is pending. This subdivision does not apply if no hearing was held in the pending structured settlement transfer proceeding within 90 days of the filing of a proceeding.
Payee to Have Standing To Bring Private Action for violations of and Recover Limited Damages, Attorney Fees and Structured Settlement Paymnet Rights Reconveyed to Payee
(b) A payee has standing to bring a private action for violation of this Article and may recover all damages and pursue all rights and remedies to which the payee may be entitled pursuant to this Article or any other law. Any payee who brings an action against the transferee may recover actual monetary loss or damages up to five thousand dollars ($5,000), or both. The payee is entitled to attorneys' fees and costs incurred to enforce this Article. In addition, all unpaid structured settlement payment rights transferred in violation of this Article by any transferee shall be reconveyed to the payee.