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It’s Time to Liberate the Sale of
Structured Settlement Payments in North Carolina
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The following article by KG Funding owner Mike
Schaul appeared in the April, 2005, issue of the Campbell Law Observer,
which is published by students at the Norman Adrian Wiggins School of Law, This article was an update of an article which
appeared in the Campbell Law Observer in Summer, 2000. It contains addenda explaining technical
details and new information between the articles. At present, I am still working with the NC
General Assembly to fix the problems discussed in these articles. A soldier at He could have legitimately been considered a The consequences for this soldier were more dire than those for most
structured settlement payment sellers, but nonetheless similar. Over the years, many of the people who have
come to me to sell payments have been holders of settlements created for them
as children. Now, as adults, they have
different life plans than those anticipated for them. I’ve had to tell a new bride I
couldn’t get her the down payment on a new house. Before the NC law was enacted, I helped a
young tradesman who had just moved to the state. He needed to pay his wife’s maternity
bills. Then, he still had enough of an
income stream remaining that he came back twice in the next few months to
sell more payments so he could buy a house and start his own business. None of that could happen in NC today,
but, as you’ll see later in this article, it could happen in at least
37 states that ours could easily emulate. The NC law, like those in other states in the late 1990’s, was
inspired by a legitimate consumer protection concern on the part of
legislators. Unfortunately, at the
time, the voice of the insurance industry, an implacable opponent of payment
sales, was far stronger than that of a handful of purchasers. Some states created laws that allowed
reasonable discounts but required a court order. Some insurance companies routinely filed
lengthy, obfuscatory briefs that were largely
irrelevant to the cases in order to drive up petitioner expenses. I wrote in some detail about the provisions and effects of the 1999
(and still in effect) NC law in the Summer, 2000, issue of the Campbell
Law Observer. I had lobbied
successfully against a federal bill in 1998, but my involvement with the NC
bill started too close to its passage for me to stop it. The fundamental problem is that it sets the
allowed discount rate at a level that is too low for the purchasers’
cost of funds. The article, along with
some additional explanations and updates can be found at http://www.kgfunding.com/CLO2000.html. (There have been windows of time when the cost of funds allowed large
settlements to be purchased profitably.
I was recently told about a $435,000 transaction in progress in In 2001, the National Association of Insurance Commissioners
negotiated compromise model state legislation with both NSSTA (National
Structured Settlement Trade Association, the insurers) and NASP (National
Association of Settlement Purchasers, the buyers). Federal enabling legislation incorporating
the same principles was negotiated, as well.
The Federal legislation was attached to The Victims of Terrorism Tax
Relief Act of 2001, H.R.2884, which the President signed in January,
2002. It contains a chapter setting
uniform procedures for the sale of structured settlement payments, which,
among other things, resolved NSSTA’s concern
about tax consequences to its members. The fundamental control in the model state legislation is that a court
order is required to satisfy the IRS.
In turn, the court order reduces the purchaser’s risk and reduces
the discount to the seller (although the court order increases over all
transaction costs). Part of the
compromise is that no guidance is given to the court other than “best
interests” of the petitioner.
Fees and the discount rate used are enumerated in most states. Because the petitioner has legal counsel,
courts generally assume that the client has received sufficient
guidance. Experience shows that
purchasers generally control costs, including broker fees, both to be
competitive and to assure that courts don’t reject petitions. Insurance companies no longer object. Court orders in these cases have already
become routine. Thirty-seven states have adopted the model legislation. The National Structured Settlement Trade
Association (insurance industry) can be counted on to support enactment,
whereas in the 1990’s they did whatever they could to block such
transactions. As I understand it,
there isn’t much room for modifying the model while staying within the
federal rules. NC is now the only state
with prohibitive legislation. Most of
the others that haven’t adopted the model have no legislation, at all. I believe the time has come for At this writing, the bill hasn’t been submitted, but the right
people are interested, and I’m working to get it done. I strongly encourage you to contact your
General Assembly representatives to bring it to their attention. I hope that by the time you read this, the
bill will have a number, so you can email me at mike@kgfunding.com, and
I’ll send the number back to you. Meanwhile, many of the attorneys reading this article have clients who
have asked over the years about selling their payments. I’ve arranged with my funders to offer special pricing on deals submitted
before the bill goes into effect. I
look forward to providing you professional service at a favorable rate for
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