The Pros and Cons of Trading your Payment Rights for Cash for Structured Settlements.

Should specific conditions be established for the transfer cash for structured settlement payment rights?

If you want to get cash for your structured settlement, there are some important matters that you should be concerned with. The long term cost of selling your structured settlement for a lump sum payout are substantial. Most people don't take these costs into consideration and only focus on the immediate impact of a large cash windfall.

If you finally do decide to go with a structured settlement brokerage company this what you need to know about the law.

"A structured settlement is defined as an arrangement for periodic payment of damages established by settlement or judgment in resolution of a tort claim. In most instances, these periodic payments are established and tailored to the living and medical needs of the victim and prevent the shift of responsibility for care to the taxpayer-financed social safety net.

There are laws that protect the consumer from unscrupulous brokerage companies. Many times, the settlement agreement contains a nonassignability clause which is basically unenforceable.

Some of the purchase agreements require the consumer to stipulate to a host of provisions which severely restricts consumers rights and raises questions as to their basic fairness. To forestall suit, however, the contracts often require the consumer to defend and hold harmless the purchasing party in any lawsuit.

Nor are the price terms always fair or even reasonably fair. News and summary accounts show that some sales are completed with a 12 percent or 15.8 percent discount rate, but other sales have been completed with a rate as high as 55, 65, and 75 percent. In addition, since the discount rate is invariably calculated on the purchase price which includes brokerage and other expenses "agreed" to by the seller in the contract, the real discount rate and cost of the transaction to the seller is artificially depressed. Moreover, there is no requirement to disclose to the seller, in understandable terms, the total costs of the transaction. Given the unfairness of some of the transfer agreements, some mechanism would appear to be needed to protect consumers against factoring companies taking unfair advantage.

Some contend that structured settlements provide crucial financial protection to seriously injured victims, including: protection against premature dissipation of benefits for injured victims; periodic payments tailored to the living and medical needs of the victim and his/her family; and avoiding the shift of responsibility for the victim's care to the taxpayer-financed social safety net. They contend that there has been a dramatic growth in the number of factoring companies that are purchasing the future structured payments for a sharply discounted lump sum payment, "taking the structure out of structured settlements. This is a transaction that the injured victim enters into with a third party, completely outside of the structured settlement and without knowledge of the other parties."

According to industry watchdogs, the unscrupulous side of the structured settlement factoring business is rapidly growing. One company announced that it has undertaken more than 7,700 structured settlement purchase transactions with a total value of $370 million. During the first nine months of 1997, the same company undertook more than 3,700 structured settlement purchases paying $74 million for $163 million of structured settlement payments.

All of the careful planning and long term financial security for the injured victim and his/her family are unraveled by the factoring company offering quick cash at a deep discount for future structured settlement payments.

After almost giving away their only assured source of future financial support, many injured victims will face the prospect of public assistance to cover their future medical expenses and basic living expenses.