Vital Cash for Structured Settlements Facts
Conditions you should be aware of in the transfer of cash for structured settlement payment rights.
When you sell a structured settlement, this is nothing new. Financial arrangements such as these are commonplace, and they are meant to resolve wrongful death or personal injury claims, with the responsible party agreeing to make payments over time instead of in one lump payment. This is very useful when it comes to settling lawsuits, since undertaking extended legal proceedings will be a drain on both your personal and financial health. Structured settlements will be very useful, because you can get on with your life once you have them set in place, and your legal representative can handle the specifics.
If you do decide to use a structured settlement brokerage company, you’ll need to know a couple of things about the laws regarding this.
If you’re in a lawsuit, some services “offer” you the ability to “sell” your structured settlements to them. In exchange, they provide you with a lump sum of cash in the event you need this type of financial resource.
There are laws that protect the consumer from unscrupulous brokerage companies. Many times, the settlement agreement contains a nonassignability clause which is basically unenforceable.
In some cases, purchase agreements require that the consumer agrees to a host of provisions that severely restricts your rights and actually may not be very fair. Oftentimes, though, to avoid lawsuits or something similar, contacts also require that the consumer relieve the purchasing party of any responsibility, and agree not to sue them.
Price terms as well are usually pretty unfair to the consumer. In fact, some sales have been shown to be completed with a 12% or 15.8% discount rate, but oftentimes, the rate is as high as 55, 65, or even 75%. The discount rate is calculated on what the purchase price is going to be as well, meaning expenses such as brokerage expenses that the seller of the contract agrees to. That means that the real cost and rate of the transaction is much lower than the company states it is once everything is said and done. The seller does also not have to be informed of the total cost of the transaction — at least in terms that are understandable. And because some of the transfer agreements are so unfair, it would appear that there needs to be something put in place whereby consumers are protected from factoring companies that take unfair advantage of them.
Some say that structured settlements give financial protection that’s sorely needed to severely injured victims, so that they are protected from having their benefits prematurely dissipated; periodic payments are tailored to the medical and living expenses of the victim and the victim’s family, and it avoids shifting the responsibility for the victim’s care to the social safety net financed by taxpayers. These same people say that factoring companies that purchase future structure payments for sharply discounted lump sum payments are dramatically on the rise. This means that the structure is taken out of the structured settlements, in that the injured victim enters into this with a third party, thus going completely outside of the structured settlements without knowledge of any other parties involved in the structured settlement itself.
Because of this need, a secondary market has arisen whereby companies purchase a portion or all of the individual settlement for one lump sum payment. That lump sum is the result of the discounted present value of the payments the company is purchasing, using discounted rates that average currently between 16 and 18%. These discounted rates take into account the cost of capital, the company’s profit, and any inherent risk involved in undertaking the settlement.
The National Association of Settlement Purchasers (NASP) is composed of companies that purchase deferred payment obligations, including structured settlements. It is a nonprofit. It was formed in July of 1996, and this organization, along with its member companies, support reasonable regulation whereby the rights of consumers who want to sell structured settlements payment rights are still protected. Because of this, the organization has adopted a code of ethics, including consumer suitability of protection standards. It has also implemented a fraud alert system. The organization seeks to provide claimant representatives and claimants themselves with legal, ethical and efficient means by which to obtain liquid funds from inflexible structured settlement schedules. NASP is active in a number of states, and is currently working to pass comprehensive legislation in those states that would protect the interests of personal-injury victims both when the settlement agreement is reached, and in the event the individual or his/her representatives seek to liquidate a portion or all of the structured settlement in the future.
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