by John Darer® CLU ChFC MSSC RSP CLTC
In " Judge Norman Ruiz Gives Peachtree Settlement Funding "The Bronx Cheer! I lauded Judge Norma Ruiz as part of a circle of New York Judges who are examples of those doing their part to enforce the structured settlement protection acts. Enforcement of such facts is important for consumer and attorney confidence in the structured settlement product.
In The Matter Of The Petition Of Settlement Funding Of New York, LLC v. Hartford Comprehensive Employee Ben. Svc. Co. (Melissa Feliciano), Index No. 260551/2009, Supreme Court, Bronx County, N.Y. (N.Y. Sup. Ct. May 26, 2010) the important part of the case, in my opinion, was this quote:
“Apparently, there is a growing proliferation of late night and cable television commercials by factoring companies promoting these transfers, utilizing catchwords such as ‘It’s your money and you should have it now’. These commercials leave desperate viewers with the purposeful impression that they will actually receive up-front, dollar-for-dollar exchanges as soon as they apply. Such disingenuous marketing serves to promote the financial gain of these factoring companies while undermining the integrity and legitimate purpose of structured settlements. Payees . . . discover after they’ve applied for these transfers, that the illusion of receiving all of their money up-front, rather than later, is not the reality.”
Peter Vodola of Seiger Gfeller Laurie, LLP, a Connecticut lawyer who among other things represents insurers' interests with respect to compliance in structured settlement factoring transactions, gets it. The title of his July 26, 2010 blog "The Illusion of Receiving All of Their Money Up-Front Rather Than Later, Is Not The Reality"
Vodola is also the source of this related quote “’Anyone who watches daytime television is bombarded with advertisements seeking to buy out structured settlements.’ But what people are not told is that they will be subjected to lengthy court review before completing their transactions, a process that requires legal sophistication and patience to understand.” Corrie Erickson, “Chapter 593: A Structure For The Transfer Of Structured Settlements,” 41 McGeorge Law Review 667, 674 (2010).
In addition to the Ruiz quote, 4 months later the National Structured Settlements Trade Assocation has elected to report on the case for the first time.. Unfortunately the NSSTA has elected to focus on an erroneous discount rate that was quoted in the case materials and uses that to call structured settlement factoring a 71% "non solution"
In his July 28, 2010 commentary of the Feliciano case Andrew Cravenho of Settlement Quotes, LLC stated " It’s important to note that the discount rate of this transaction was not 71.40%, the discount rate of the transaction was 17.9% effective" Cravenho's commentary highlights a common confusion between future value of structured settlements and present value of structured settlements that appears to have even afflicted the NSSTA. Either that or NSSTA DID NOT actually read the whole decision. Download Judge-ruiz-decision-re-feliciano-factoring-matter-involving-peachtree-settlement-funding
To Wit...quoting from the Feliciano decision by Judge Ruiz... (see decision p4 1st paragraph)
- The amount to be transferred was "Income Payments Beginning 04/28/2015-Last payment 03/28/2020-This would have resulted in 60 monthly payments of $1,011.29".
- " Pursuant to the New York Transfer disclosure the amount to be transferred is $60,677.40". It so happens that 60 times $1,011.29 equals $60,677.40. Bear in mind that the payments start in 2015 and end in 2020
- the "annual discount rate of 14.99% was utilized in calculating the gross advance amount of $19,540.00. Once the processing fees ($200.00) and legal fees ($2,000.00) were deducted, the net amount payable would be $17,340.00
If the Judge admits that the discount rate of 14.99% equals $19,540 and $17,340 is 88.74% of the present value with a 14.99% discount rate then logically, the discount rate CANNOT be 71.4%!
I'm puzzled and embarrassed as a long time NSSTA member, that the NSSTA takes it a step further by making a false generalization about factoring. The NSSTA collaborated with NASP to come up with a solution that is now embodied in the IRC 5891 and the state structured settlement transfer acts. Such acts state that a life insurer cannot be forced to split payments if one of its annuitants factors. The insurers, who are also NSSTA members, then elect, at THEIR discretion, not to split payments, forcing the annuitant to enter into servicing agreements that expose them to at minimum additional cost and heartache in the event of bankrupcty of the servicing company. Furthermore in such cases the annuitant can no longer deal directly with the annuity issuing life insurance company.
Factoring per se is not a "non solution". Factoring is very much a solution for some and, the current enviroment the secondary market affords visionaries in the primary market a lot of opportunity to create better solutions for clients than NSSTA has been able to articulate... and/or is is probably willing to articulate. Judicial oversight is an important part of the law to assure an orderly process. Once again it is my understanding that NSSTA has been integrally involved in defining the process.
I may as well chuck in a little irony to wrap this one up. in July 2010 this author understands that NSSTA had input with Wall Street Journal author Jason Zweig on an article Another Can't Miss Deal That can Miss Spectacularly, which WSJ later published cautioning those "Investing " in Factored Structured Settlements Payments". NSSTA posted a link to the Zweig article on its website. The Zweig article actually cites to Peachtree CEO Jim Terlizzi who offers sensible advice to investors.
I'm no fan of Peachtree Settlement Funding and lord knows that "the structured settlement watchdog" has been by far the most vocal critic of factoring industry business practices. But let's try to get it right NSSTA. NSSTA owes it to the industry and its members (on whose behalf they write), to provide accurate understanding of basic financial concepts like present value and future value to consumers.