Structured Settlement Loans Offer An Alternative to Cash Now Seekers

by John Darer CLU ChFC CSSC RSP CLTC

A Structured settlement loan is a a way to get " cash now" without having to sell your structured settlement payments rights.

As one alternative to selling your structured settlement payments, you can now borrow funds as a legitimate loan at fair and customary rates from a bank that is both federally and state regulated and has been in business over 130 years and rated 5 star by Bauer Financial, .  

Midland States Bank is a FDIC insured bank that is regulated at the federal level by the Federal Reserve Bank and at the state level by the Illinois Department of Financial and Professional Regulation – Division of Banking.

Features of Structured Settlement Loans

•  The loan must comply with state usury laws. 
•   As a legitimate loan, the loan can be paid back at any time without prepayment penalty. 
•   Midland States Bank does not purchase payments, but obtains a security interest in the payments to collateralize the loan.
•  Structured settlement loans are shown as loans (assets) on Midland States Bank’s financial statements, not as purchases. 
•  Because the transaction is a legitimate loan, structured settlement loans must be reserved for, via bank capital, as required by banking regulators. 
•  Because the payments are not purchased Midland cannot, and will not, resell payments to be used against structured settlements in the secondary market. 
•  All aspects of Midland States Bank are regulated, including its sales and marketing practices.  Midland will not engage in predatory sales practices. 
•  Midland States Bank is a well-capitalized community bank established in 1881.  Midland has earned a 5-Star rating from BauerFinancial, an independent rating agency.

  Contrast with Current Stuctured  Settlement Secondary Market

• Sales practices virtually unregulated. Predatory behavior is worse than it has ever been due to the lack of regulation.
• No licensing standard
• No enforceable sales and marketing practices standard.  
• The rating standard is the Better Business Bureau because that is all many of them have and the BBB is not all it's cracked up to be. [For example, The Better Business Bureau has maintained the A+ ratings of Sovereign Funding Group despite its President testifying under oath that he made up phony name, submitted phony names to the Better Business Bureau and  created phony Linkedin, Facebook and Google Plus profiles. }
• Some companies may take advantage of your predicament and encourage you to commit fraud by falsely claiming that you live in a place that you don't using the " Wexter Wolf" principle.

Comments

• Innovation is good.  
• I think structured settlement loans present a viable alternative to companies that grab low hanging fruit and take advantage of those that do not shop with high rates.
• Notwithstanding the other issues in the bullet points immediately above, I think that settlement purchasers with discount rates in the 6-10% range should not be concerned.  
• Make sure that you comparison shop. Compare the cost of the structured settlement loan, including all legal and origination fees against the amount that you would get from a settlement purchaser inclusive of all fees.

Postscript

In response to a few questions we received, I was able to get the following answers from Midland States:

• Structured settlement loans through the Midland States Bank facility will have a cap on attorney fees, according to a bank representative that I spoke to this morning. 
• Structured settlement loans through the Midland States Bank facility will have no originaton fees according to the same representative.

So is a Structured Settlement Loan really a structured settlement factoring transaction? 

IRC 5891 (c) (3) defines what a structured settlement factoring transaction is.  It also defines what IS NOT a structured settlement factoring transaction.  IRC 5891(c)(3)(B)(i) expressly states that the term "structured settlement factoring transaction "shall not include the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution in the absence of any action to redirect the structured settlement payments to such institution (or agent or successor thereof) or otherwise to enforce such blanket security interest as against the structured settlement payment rights."   

The Midlands States rep stated that as part of the structured settlement loan there will be a UCC-1 filing to secure the bank's rights in the payments to repay the loan from the structured settlement. It will not be a blanket security interest.

 

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