WASHINGTON, Jan. 10, 2016 — Companies that operate in a virtually unregulated industry often try to lure former injury victims to sell their structured settlements, with catchy “get your cash now” type of ads.
We buy your structured settlement and give you cash! Need Money? Get cash today!
A structured settlement is a regular or scheduled payment to an injury victim following an agreed upon resolution of the victim’s claims. Typically the at-fault party’s insurance company will purchase an annuity that provides regular or specific scheduled payments to the victim for years into the future.
For example, a “settlement” of $500,000 might be paid out in increments of $50,000 per year, beginning three years from the date of the agreement and continuing until funds are exhausted. The total payout is enormously favorable to the recipient as the interest builds up year by year and is paid to the recipient. This produces much more money altogether for the injured party than the amount originally invested.
Last year, the Washington Post ran a story about a an injury victim named Rose who agreed to a structured settlement. The agreement called for monthly payments of $1,000, with yearly increases, guaranteed for 35 years. The guaranteed total amounted to over $574,000, with a present value of approximately $338,000.
The benefit of these structured settlements is more than the simple value of receiving more money. Traditional settlements are paid in one immediate lump sum. But structuring the receipt of the settlement money results in certainty over a long period of time, often decades. Additionally, it protects those who are vulnerable to potentially greedy or influential family members or close friends. Structured deals also prevent the recipient, who often is not financially savvy, from blowing all of the money in a short period of time on unwise purchases or through any number of other bad deals.
When the victims are children, agreeing to a structure could provide funds for college and beyond. If the victim is an older person, the structured nature of the payouts can be a reliable source of funds, potentially, for the rest of the individual’s life. For victims with a terminal illness or with serious medical issues, the regular, guaranteed funds can be used to address medical expenses.
Yet things that are good seem to be inevitably paired with things that can be bad. The Internet, for example, was wonderful early on. Now, we all fear worms, malware, hackers, viruses and identity theft.
So too, the world in which injury victims are awarded money in the future from structured settlements has been steadily invaded by hundreds of companies, many of which aggressively advertise and seek to purchase the stream of payments. What is not being advertised or explained is that the purchase price now for the right to receive all of the payments later translates into paying ridiculously high “discounts.” In a word, these companies are scamming innocent and otherwise financially unwise people.
The allure of the “Need Cash Now?” pitch is great. Individuals with debt, cash flow problems and known large, upcoming expenses often fall prey to companies that offer to buy their structured settlement. Getting “money now” can certainly help with those unexpected bills or even present an opportunity to buy a home.
Rose, the lady interviewed by the Washington Post, sold her right to her future payments for a one-time lump sum amount of less than $63,000. The process began for her when she got a letter from one of those “money now” companies.
It should be noted that Rose can barely read or write. She cannot work because of her injury, she cannot live alone, and she certainly did not understand the letter. The letter she received was followed up by a telephone call, and then a nice meal with a very nice man at a fancy restaurant. Finally a 12-page contract was presented to her, and based upon the nice man’s explanations and promises, Rose got some “quick cash” for some “checks in the distant future.”
Another story in the Washington Post chronicled the story of a Virginia man, Terrence Taylor, who received a structured settlement after being badly burned. He sold most of his $8 million benefit stream for quick cash, which he then used on nightlife and gambling.
The core problem is that some of the companies that purchase these structures offer ridiculous “discount” rates. If a structured payment has, for example, a future value of $100,000, a discount rate of 12 percent, providing $88,000 to the recipient, would be considered fair. Some companies, however, use discount rates upwards of 30 percent.
Laws now require that a judge must approve any purchase of a structured settlement. Unfortunately, the seller of the settlement is not always protected. One reason is that courts do not want to interfere in a deal made by two consenting parties. Bad deals for the former victim are thus too often rubber-stamped.
Virginia is now looking at reform proposals. To their credit, an association of companies that purchase structures, the National Association of Settlement Purchasers, welcomes more stringent regulation. In November they announced that they had sponsors for legislation in Virginia and in other states that require better disclosure, that the approval lawsuits be filed in the recipient’s home jurisdictions, and that the recipient must actually appear in court for the hearing on the approval of the sale.
Adding their voices and experience to Virginia’s process of reform review, several leading attorneys provided perspective:
John Shea, a Richmond, Virginia, plaintiff’s attorney and former president of Virginia’s Trial Attorneys Association, offered the following observation: “I generally think these companies are pariahs and leeches on the vulnerable and they defeat the salutary purpose of the structured settlements.”
Brent Brown, another Virginia Plaintiff’s attorney said, “As a general rule, the amount of money that is offered… is a pittance compared to what they are entitled to.”
If you are the owner of a structured settlement following a resolution of an injury claim, be careful when, not if, you are approached by a company looking to buy that settlement from you.
Look at the discount rate, and ask the company that wants to buy your structure if they have ever gone bankrupt. If so, that is a clue.
Finally, you should hire an attorney before you sign anything. This is a critically important decision and one that could help prevent you from becoming a victim once again.