By Cam Mears
Queens New York Factoring Denial
You can convert future payments into cash, but is it always the right thing to do? The recent denial of a factoring transaction by a New York judge has received a lot of attention lately. This case provides us a good opportunity to show you why court approval of structured settlement sales are necessary, and how this approval is meant to protect people, helping to ensure their financial security. You can convert future payments into cash, but you need to have a good reason.
Allia Rahman needed cash to pay tuition for her last two years of college, but she had no assets and no access to credit. She did have a structured settlement, though, so she called the number she saw on TV and agreed to sell her payments to an aggressive factoring company.
The transaction required court approval pursuant to New York’s Structured Settlement Protection Act, which says that the court must find the transaction to be in the best interest of the annuitant.
The judge did not approve the deal to convert future payments into cash. He cited the transaction’s high 17.8% interest rate and the fact that Rahman was “selling her right to guaranteed payments for a fraction of their value.” Further, he proposed that the New York Legislature consider a cap on factoring company rates to protect people in desperate financial situations from accepting rates this high.
What About the Needs of the Annuitant?
This transaction has generated a lot of anti-factoring commentary, but it is troubling that no one seems interested in how Rahman is supposed to pay for school. Isn’t that the main issue? Rahman’s needs to convert future payments into cash were legitimate; she was not seeking to “start a business” or buy a truck. What will she do now?
How Can Factoring Companies Help People?
All factoring transactions are subject to state Structured Settlement Protection Acts (SSPAs). But, it should also be the job of the factoring company to determine that the transaction is in the annuitant’s best interest, and that their needs are being met, before proceeding to court.
I work on referrals from attorneys and structured settlement professionals. I do not advertise or encourage people to sell their structured settlements.
When I help annuitants I seek to understand the situation and to explore alternatives to selling their payments. I explain unique value of a structured settlement.
I advise that selling should truly be a last resort. When selling payments makes sense, I propose a plan that preserves as much of the structure as possible while meeting the annuitant’s immediate needs.
Based on the information provided in the court papers, and assuming selling her payments was the best option, I would have offered Rahman about $20,000, at a discount rate of 10.9%. The deal that was denied was for $12,500, at a discount rate of 17.8%.
What Can You Do?
A structured settlement should be forever, but despite the best planning sometimes things change. If you don’t provide guidance to your clients when they ask about selling structured settlement payments, all they have is the number on TV. They run the risk of having the same experience as Allia Rahman. Sometimes, life changes and a client needs to convert future payments into cash
Let me help you help your clients.