Consumer Protection for structured settlement annuitants
In order to ensure that the sale of a structured settlement payment is in the best interests of the annuitant, the following legislative actions have been undertaken:
A Qualified Order
Federal law protects consumers who receive structured settlement payments by requiring companies that want to purchase those payments to obtain a qualified order first. Those companies that do not obtain a qualified order are subject to an excise tax on the payments purchased. A qualified order is issued by the court once it has been determined that the transfer of the structured settlement payment rights is in the best interest of the payee.
Full Disclosure
The law also requires the buyer of the structured settlement to disclose important transaction information to the consumer to ensure a knowledgeable seller.
History of Industry Regulation
On January 23, 2002, the U. S. Federal Government signed Section 5891 of the I.R.C. into law regulating the transfer of structured settlement payments. The law attempts to protect individuals who want to sell their structured settlement payments by making it mandatory to obtain court approval first and by working in conjunction with state laws directing how these transactions are to be completed.
To date, 38 states have passed laws which complement federal law s5891. These laws mandate significant, additional financial and legal disclosures to the annuitant and ensure that annuitants considering selling their structured settlement benefits receive a fair deal. These laws recognize those clients' lives and circumstances change and so their needs change - a structured settlement that made sense at the time of the settlement may need to be adjusted today in order to keep maximizing the benefit and value to the annuitant.
Every state statute requires that a judge approve the transfer of structured settlement payment rights. The statutes give judges the authority to decide whether the transfer is in the best interest of the selling annuitant. This test obviously opens the door to many interpretations. Most judges are satisfied that this test of best interest has been met if the transaction process has followed the requirements of the statutes. That is the seller has: a) received the appropriate documents including a financial disclosure statement; b) been given the required cooling off period to cancel; and c) received, or has been given the opportunity to receive, independent professional advice regarding the transaction.
Other judges require that the annuitant be present in court to explain why he/she wants or needs the cash now. In some cases, the judge will make a decision of best interest based on the discount rate or, in other words, the cost of the lump sum cash to the annuitant.
A high discount rate is not, however, a guarantee that a petition will be rejected by the court and, as in any large value transaction, it is still "caveat emptor", let the buyer beware. It is in the best interest of the seller to seek financial and legal advice. The seller should search for a reputable company offering fair, consistent and reasonable discount rates along with efficient, straight-forward and honest services. It is reasonable to ask for references and to ask questions to determine the average effective interest rate charged by the companies quoting on buying the structured settlement payments.
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