STRUCTURED SETTLEMENTS AND H.R. 4314 CUTTING THROUGH THE DEMAGOGUERY Summary: Structured settlement purchasers provide a valuable service to individuals that originally choose a structured settlement instead of a lump sum and now wish to alter the timing of some or all of their payments. The vast majority of structured settlement recipients are employed and perfectly capable of deciding what is best for them financially. They had the right to choose a lump sum at the time of settlement and should continue to have the right to choose how they get their money. HR 4314 eliminates citizens' rights to choose what to do with their money. Myth: Structured settlements are used to provide for the long term care of seriously injured people. Reality: Over 85% of structured settlement recipients are gainfully employed or capable of working and do not suffer from a long term disability. Myth: Structured settlements were intended to prevent people from quickly dissipating their awards. Reality: The vast majority of people had the choice of a lump sum or a structured settlement at the time of settlement and they chose a structured settlement. Myth: Claimants who sell a portion of their settlement squander the money. Reality: 34% Use the money to buy or renovate a home. 31% Pay off existing debts including tax liens and child support obligations. 14% Pay medical expenses. 11% Use the funds to open or expand a business. Myth: Settlement Purchasers use high pressure sales tactics and usurious interest rates. Reality: Settlement Purchasers advertise and respond to in-bound phone calls. The claimant initiates the contact and can terminate the contact by simply saying they are not interested. Settlement Purchasers insist that individuals seek legal and financial counsel before they sign a contract. Most contracts for sale of settlement payments contain a 3 day right of recision and all terms and conditions are fully disclosed in writing. The discount rates charged by Settlement Purchasers are consistent with the rates of major credit card companies throughout the US and competition is driving discount rates down all the time. Myth: IRC 130 was adopted to encourage people to accept long term pay-outs of personal injury claims and the Treasury Department has so found. Reality: IRC 130 was passed at the behest of the insurance industry because it provides them a huge tax benefit. Treasury presented a more balanced view of the structured settlement industry, stating: "It could be argued that imposing a tax on the acquisition of the payment stream would only worsen the risk that the injured person would receive an excessively discounted value..." and "It could also be argued that it is not the function of the tax law to prevent injured persons or their legal representatives from transferring rights to payments. Arguably, consumer protection and similar regulation is more properly the role of the States than of the Federal Government." Myth: Insurance companies wish to protect structured settlement claimants from themselves. Reality: This is a total fallacy. Claimants have complete latitude to accept a lump sum or structured settlement at the outset. Structured settlements are incredibly profitable for the insurance companies and the brokers that set them up (the NSSTA and its members). Take it from them - The Travelers Structured Settlements Manual says: "The primary objective in expanding the use of structured settlement is to maximize their value as a tool to reduce both claim loss and expense costs." "Essentially, when a claimant has a reduced life expectancy and a substandard age rating has been obtained, the more life contingent benefits provided in the structure offer, the higher the savings on the claim." The insurance industry does not like the fact that Settlement Purchasers are educating the public about the "time value of money" (the real value of the settlement they accepted). Myth: H.R. 4314's exception for court approved hardships addresses the needs of those who really need access to their money. Reality: There is no court procedure for obtaining such an order in 47 of the 50 states. To the extent that a petition can be brought before a court, the bills standard of "extraordinary, unanticipated and imminent" will lead to a disparity of results amongst and between residents of the several states. Myth: Settlement Purchasers oppose regulation. Reality: The Settlement Purchase industry embraces reasonable regulation and recently sought to introduce such legislation in Illinois, which was opposed by the NSSTA and the insurance industry. Settlement Purchasers have and will support reasonable regulation at the federal and state levels. Related articles: Annuitys & Structured Settlements: The Controversy Of Selling Payments Impact OF H.R. 4314 On The Banking Community Myths and Reality of H.R. 4314 House Ways and Means Commitee Back to the Breaking News Page
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