Austin, TX: After twenty some years in the structured settlement business, Terry Taylor knows his industry—the good, the bad and the ugly. A former president of the National Structured Settlement Trade Association, Taylor warns there are vultures that prey on people who are poor, uninformed or desperate. The vultures Taylor is talking about are not part of this organization, but people often do not understand the difference. "Yes, I am a little mad at the predators," 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."
Taylor works with Strategic Capital, a highly reputable company that both buys and sells settlements and recommended by Consumer Attorneys of California (CAOC).
The bad apples are referred to as the "Factoring" companies—their sole purpose is to buy up settlements at excruciatingly high discounts. Unfortunately many people get hurt and don't realize that a 30 percent charge for the sale of an annuity is not the industry standard.
Americans receive as much as $4 billion a year in monthly disbursements usually as the result of a lawsuit. 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 than 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.
"People don't understand discount rates," says Taylor. "All they know is in a few 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 Structured Settlement Trade Industry, 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, who doesn't add very well, will approve a 30 percent discount. It doesn't happen very often, 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 import to ask who is servicing the debt. Ideally, it should be the insurance company and not the people who are buying the settlement. If they go broke—so will you.
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 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 refuse to work with another factoring company, making them the only one who can purchase any future sale at whatever price they set.
"Strategic Capital has always been fair with people," says Taylor.
"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.