Old News

One of the ironies of living in the “Information Age” is that information tends to stick around, even beyond its “expiration date.” This is nothing new really, since the written word has always had a durability beyond the writer, and often to his chagrin. The difference today is that written words are easily searchable and accessible through the internet. Plus, internet-based writing often fails to follow the conventions we are used to with other writing. For instance, it is unfortunately common to find articles on the internet that are undated, with little care devoted to updating. If you found a book in the library on the stock market, but noticed that it was written in 1928, you would (or should) instantly know that the regulation and workings of the market have changed drastically since then. If such a book were undated and never updated it may well lead to some confusion in readers.

Searching the internet the other day for “structured settlements” I ran across an article entitled “ Selling a Structured Settlement: It Could Cost You More Than You Know ,” by respected Massachusetts attorney Kenneth Kolpan. Sadly, this article contains many factual errors, at least in terms of what is happening today in the structured settlement factoring industry. Surely this article must have been written many years ago, yet it is undated so I can’t tell for sure. I tried to contact Mr. Kolpan to point out these inaccuracies, but have not heard back from him. His article is still up and is here: http://www.kolpan.com/lawyer-attorney-1145241.html. To clear the internet “record” so to speak, here is what I wrote to him on August 22, 2007:

Dear Mr. Kolpan:

I found your article today entitled "Selling a Structured Settlement: It Could Cost You More Than You Know" which is posted on your website. I found it interesting and generally well reasoned; however, there are some blaring inaccuracies, in my opinion. The article does not give a publication date, and it may well have been written some years ago, which would explain many of the inaccuracies I found. I urge you to consider the following points and to amend or rewrite your article.

Although your article is generally accurate about the history and mechanics of structured settlements, I found your characterization of factoring and the companies in this industry to be unjustifiably negative. You use statements like, "Persons in these situations [experiencing a sudden financial need] are at the mercy of companies (factoring companies) who use cash to buy the structured settlements." In a free and competitive market, it is difficult for me to imagine why a seller of structured settlement payments is "at the mercy" of a prospective buyer, and more than a home owner with a broken water heater is at the mercy of a plumber. There is a need and an available solution.

Other than negative references to factoring, your article also contains some factual inaccuracies, some of which may be due to being out of date. For instance, you make two references to alleged or suspected lack of disclosure to the seller of the essential terms of the sale. 47 states have adopted statutes governing the sale of structured settlement payment rights. The vast majority of these, including your state of Massachusetts, are based on a model act approved and promulgated by the National Conference of Insurance Legislators. This model act was the result of a cooperative effort between the structured settlement primary market of insurers and brokers and the factoring industry. Under the model act (and Massachusetts law, MGLA 231C, § 2(a)(2), for instance) a prospective seller of structured settlement payment rights must be given a disclosure statement prior to entering into the sales contract. This disclosure statement outlines the details of the transaction in statutorily prescribed fashion and language. Further, under the model act, Massachusetts law, and under federal law (IRC 5891), all structured settlement factoring transactions must be approved by a court. The crucial inquires for the court are whether the transfer statute (including the disclosure statement requirements) has been complied with, and whether the transfer is in the best interest of the seller, taking into account the welfare and support of any dependents.

Elsewhere in your article you question whether the cash purchase price paid to a seller would be nontaxable. It has been clear since at least 2002 with the passage of the federal Structured Settlement Factoring law that factoring purchase price payments to personal injury annuitants are not taxable. (IRC 5891(d)(1); see also Private Letter Ruling 1999-36030).

Structured settlement factoring has come a long way since its inception in the late 1980s. I would welcome the chance to discuss this with you in more detail, or answer any questions you might have.

Sincerely,

Matt Bracy

For more information about this or any other topic relating to structured settlement factoring, feel free to contact me at mbracy@setcap.com.