by John Darer CLU ChFC MSSC CeFT CLTC
A bill has been introduced to add more teeth to the Minnesota Structured Settlement Protection Act, including unprecedented provisions that address conduct of structured settlement factoring companies' and their representatives, that have been observed in Minnesota and across the USA.
The new bill follows the Minneapolis Star Tribune's blistering multi-part expose of the structured settlement factoring industry and its impact on Minnesotans published in the Fall of 2021.
549.30 Sec 2 MN Stat 2020
Assignee means a person acquiring or proposing to acquire structured settlement payment rights from a transferor.
Sec 6 Subd. 19 "Transferee is a person acquiring or proposing to acquire structured settlement payment rights"
It would seem that there is yet another reason for there being no legitimacy to any company marketing structured settlement payment rights to Minnesota investors as annuities.
Sec 3 MN Stat 2020
Adds effective equivalent annual interest rate requirement requiring a showing of the annualized rate of interest on the net advance, calculated by treating then transferred structured settlement payments as if they were installment payments on a loan, with each payment applied forts to accrued unpaid interest and then to principal.
My Comment: This is a standard requirement in many states' structured settlement structured settlement protection statutes.
What NEW things must a Minnesota Court consider in rendering it decision on a structured settlement transfer?
(c) based on the files, records, disclosures, and evidence presented at the hearing, the court has established that the financial terms of the proposed transfer are fair and reasonable, and the proposed transfer is in the best interests of the payee and the payee's dependents; after considering:
(1) the payee's age, legal knowledge, and apparent maturity level, and any other relevant factors and the stated purpose of the transfer.
(2) whether the payee has the capacity to fully understand the financial terms and implications of the transfer agreement.
(3) whether the payee is employed or employable.
(4) the ability of the payee to meet ongoing and known future living expenses, including medical expenses, and the current and future financial obligations of the payee and the payee's dependents, including child support and spousal maintenance.
(5) whether the payee completed previous transactions involving the payee's structured
settlement payments, and the timing, size, stated purpose, and actual use of the proceeds.
(6) the impact of the proposed transfer on current or future eligibility of the payee or
the payee's dependents for public benefits; and
(7) any other factors or facts the court determines are relevant and should be considered.
(d) the payee has or has not received independent professional advice regarding the legal, tax, and financial implications of the transfer.
(e) the transferee has given written notice of the transferee's name, address, and taxpayer identification number to the annuity issuer and the structured settlement obligor and has filed a copy of the notice with the court or responsible administrative authority; and
(f) that the transfer agreement provides that any disputes between the parties will be governed, interpreted, construed, and enforced in accordance with the laws of this state and that the domicile state of the payee is the proper place of venue to bring any cause of action in district court arising out of a breach of the agreement. The transfer agreement must also provide that the parties agree to the jurisdiction of any court of competent jurisdiction located in this state and that no predispute arbitration is required by the agreement.
Appointment of evaluator.
The court may, in its discretion in any case, appoint an attorney to make an independent assessment and advise the court whether the financial terms of the proposed transfer agreement are fair and reasonable, and whether the transfer is in the best interests of the payee and the payee's dependents. The evaluator must present the findings of the evaluation to the court at or prior to a hearing on the application. All costs and reasonable fees for the evaluator shall be borne by the transferee.
Unenforceable confessions of judgment.
A provision in a transfer agreement giving a transferee power to confess judgment against a payee is unenforceable
549.31 Sub 1 b(5) Conditions for transfer of structured settlement payments
an itemized listing of all brokers' commissions, service charges, application fees,
processing fees, closing costs, filing fees, referral fees, administrative fees, legal fees, notary
fees, and other commissions, fees, costs, expenses, and any other charges payable by the
payee or deductible from the gross amount otherwise payable to the payee and verification
that the total fees and charges do not exceed two percent of the total compensation payable
to the payee;
[549.315] DISCOUNT RATE.
The discount rate used in determining the net amount payable to the payee under the
transfer agreement may not exceed an annual percentage rate of prime plus five percentage
points calculated as if the net amount payable to the payee was the principal of a consumer
loan made by the transferee to the payee, and if the structured settlement payments to be
transferred to the transferee were the payee's payments of principal plus interest on such
loan. For purposes of this subdivision, the prime rate shall be as reported by the Federal
Reserve Statistical Release H.15 on the first Monday of the month in which the transfer
agreement is signed by both the payee and the transferee, except when the transfer agreement
is signed prior to the first Monday of that month then the prime rate shall be as reported by
the Federal Reserve Statistical Release H.15 on the first Monday of the preceding month.
The Prime Rate at time of posting was 3.25%. Thus, if enacted, the cap would be 8.25% until there is a change in the prime rate. A similar type of cap exists in North Carolina. Not very popular with the structured settlement factoring industry, some of whom may claim that such caps stifle competition (from some buyers of structured settlement payment rights choosing not do business in the state as a result) and thus (they claim) hurts the consumer. In any case, a company discounting payments with an 8.25% discount would not be very competitive in today's marketplace, where one company advertises an average discount rate of 6.05%, Berkshire Hathaway's Hardship Exchange offers a 6.5% discount rate and the 800 lb gorilla JG Wentworth will consume any banana that looks ripe and beat any rate it chooses to.
549.32 APPLICATION; PROCEDURE FOR APPROVAL OF
(a) An application for authorization under section 549.31 of a transfer of structured
settlement payment rights must be filed in the district court in the county in which the payee
(b) The payee must appear in person at the hearing unless the court determines that good
cause exists to excuse the payee from appearing in person.
Good idea to bring Minnesota in line with other states that require a personal appearance so that the judge can get a good read on the seller, and reduce the incentive for factoring companies to forum shop annuitants into other counties or states with Judge Rubber Duck Stamp presiding.
[549.325] PROHIBITED PRACTICES.
No transferee shall:
(1) represent the payee;
(2) intervene in a pending structured settlement transfer proceeding, if the transferee is
not a party to such proceeding or an interested party relative to the proposed transfer that
is the subject of the pending structured settlement transfer proceeding;
(3) offer or provide any gift, loan, extension of credit, or advance as an inducement to
enter into a transfer agreement or pay a fee to any person to refer a potential payee to the
transferee or any affiliate of the transferee;
(4) communicate with a payee or a person associated with the payee with excessive
frequency, at unusual hours, or in any other manner as reasonably may be expected to abuse
or harass the payee in connection with a proposed transfer;
(5) solicit a prospective payee through the conveyance of a document in any way
resembling a check or other form of payment;
(6) provide in a transfer agreement or related document that gives to the transferee the
first choice or option to purchase any remaining structured settlement rights belonging to
the payee; or
(7) solicit or petition for a transfer of a structured settlement from a minor or a parent
or guardian of a minor.
A violation of this section is a deceptive practice in violation of section 325F.69.
Finally, a state leading the line and putting some serious teeth into the regulation of sales practices of structured settlement factoring companies and their representatives. The power, to fine, suspend or terminate authority to do business is a powerful deterrent that should have been in the law from the start, but better late than never.
#7 is perhaps a nod to the still pending Barber case in Allegheny County Pennsylvania where factoring companies completed 3 deals, the first when Zach Barber was a 10-year-old minor and all before he turned 18, two of them in a county where the then minor Zach Barber did not reside. In each instance the factoring companies were not forthright about prior transfers and judges did not parse the fact that the proposed purpose of the cash raised from each of the sales was the same.
Residents of Minnesota Considering Investing in Structured Settlement Payments Rights
Minnesota is one of 31 states that have adopted the Life & Health Guaranty Association Model Act (2017 revisions). In states that have adopted the Life & Health Guaranty Association Model Act (#520), contained in the 2017 revisions, Sections 3 (A) (5) (c) and 3 (B) (2) (n), guaranty associations do NOT provide coverage for (A) persons who acquire the rights to payments from a structured settlement annuity through a factoring transaction (as defined in 26 U.S.C. 5891 (c) (3) (A)) and (B) benefits to which a payee (or beneficiary) has transferred his rights in a factoring transaction (as defined in 26 U.S.C. 5891 (c) (3) (A)).