By Brenda Craig
Austin, TX – Twenty some years in the structured settlement business, Terry Taylor knows the factoring part of the structured settlement industry – the good, the bad and the ugly. A former president of the National Structured Settlement Trade Association, Taylor asserts there are vultures in the factoring part of the industry preying on people who are poor, uninformed or desperate. “Yes, I am a little mad at the predators in the industry,” says Taylor.
“I have always worked with plaintiffs to protect their money, and when I see them getting ripped off, I don’t like it.”
As much as $4 billion a year of structured settlements are set up as the result of of personal injury lawsuits. Unlike many advertisements would lead you to believe, the vast majority of that is paid at the claimant’s request. Taylor was once “adamant” that people never sell their structured settlements for cash, but these are tough times in the US and he has changed his position. “I have come to the conclusion it is sometimes better for people to save their home from foreclosure, for example, rather continue to receive a monthly payment,” he says.
“If they just want the money to buy a fast boat,” says Taylor, “then that’s still not a good idea.”
“If you are going to sell your settlement for cash beware of the “discount rate” you’re being offered. Taylor’s company, Strategic Capital, offers a discount rate on average of 12%. If the structured payment has a future value of $100,000 in a year – you get $88,000. “Yes, we make money, but it’s better than a credit card rate, and it is fair.”
However, there are some rough players in the business that will take you for a 30 percent “discount rate” – and you’ll end up with $70,000.
“Most people don’t fully understand the effect of discount rates,” says Taylor. “All they know is in two years I get $50,000, but if I sell it I am going to get $22,000 today. That’s a horrible deal, but they are just looking for cash now.”
In 2002, as the then president elect of the National Structured Settlement Trade Association, Taylor and others lobbied Congress for changes that would protect settlement holders from predatory practices. “Before then, we saw some horrendous deals,” he says.
Since then, the law requires that the sale of every structured settlement must be approved by a judge, but Taylor still sees problems. “Most judges take care to guard the interests of people who are selling their structured settlement, but sometimes they don’t,” he says. “Sometimes the judge will not inquire about the discount rate and may end up approving a 30 percent discount. It doesn’t happen as often as it did in the past, but it does happen.”
And, before you sign, ask if the company that wants to buy your structured settlement has ever gone bankrupt. It’s a good clue to stay away says Taylor. And it is very important to ask who is servicing the annuity payments. Ideally, it should be the insurance company or an independant third party and not the people who are buying the settlement..
People are dealing with some very difficult circumstances in the US at moment. If you sell a portion of your structured settlement to a company, they may harass you to sell the remainder. If you discover you got a raw deal on the first sale, and decide to sell the rest to another company, the first company may threaten to withhold money – or take you to court.
“Strategic Capital has always been fair with people,” says Taylor. I have referred my own structured settlement clients to them and even though I knew the owners of Strategic at the time, I checked them out my self. They have always been professional and put fair deals on the table. In fact the Consumer Attorneys of California (CAOC) realize there are times when a structured settlement needs to be sold, even though they recommend against it. In a letter to their members they said, “CAOC chooses Strategic Capital if a structure needs to be sold.”
“Yes, I sleep better now since 2002,” says Taylor. “I feel much better than I did because so many people back then were being taken of advantage of.”
But, warns Taylor, there are still some seriously bad apples out there and it is still a buyer beware situation.