Litigation

A new issue has revealed itself with resoect to the "servicing" of structured settlement payments.

I've previously written and podcasted about structured settlement servicing agreements which only come into play when:

(1) A structured settlement annuitant sells only part of their structured settlement payment rights to a factoring company or "cash now pusher"; AND

(2) The life insurance company issuing the structured annuity chooses not to split payments

A servicing agreement means that the entire annuity payment (NOT JUST THE PORTION BEING SOLD) is paid to the servicing company which then skims off what is due the factoring company and then pays the annuitant the difference, possibly with associated fees. A servicing company MAY be the factoring company purchasing the payments or it may be a 3rd party company that specializes in servicing.

I've also discussed the negative consequences of entering into a servicing agreement:

(1) Potential exposure to additional costs and delays to protect and/or recover based on your rights in the event of Chapter 7 bankruptcy of the servicing entity.

(2) No longer able to contact the life insurance company that issues your structured settlement to change address, change beneficiary, change bank or answer even the simplest administrative  questions. As a positive aside,  I want to remind readers that 4structures.com, LLC is in the process of compiling a list of and names and phone numbers of servicing entities for the benefit of consumers and the profession.

NEW ISSUE

• Now suppose the annuitant sells a portion of the structured settlement payments (from an insurance company that won't split payments) to factoring company A, which is also the servicing entity.
• Several years later the annuitant sells some more to factoring comapny B that either services itself or uses a third party servicer.
• Now the additional layer requires that even the simplest adminstrative change requires notification to two separate entities, none of which is the annuity issuing insurance company that you set up your structured settlement with, The more times you sell and the more times you use different entities the worse it gets.

FURTHER COMMENTARY

Learn all you can and recognize what you are getting into if you need cash and are thinking about selling structured settlement payment rights.

What are the primary market and secondary markets going to do to solve this problem which in reality is insurance company driven NOT factoring company driven? 

While the percentage the burden of the extra costs is passed on to the consumer one way or another, perhaps these companies will realize the lost branding opportunity and consider an alternate solution.

JG Wentworth indicates that life insurance companies ARE purchasing their securitzations (asset backed securities backed by factored structured settlement payments) for their own portfolios, although does not distinguish which ones are buying, or if those insurers are concurrently issuing structured annuities. There is nothing illegal about buying the securitizations and If one really wanted to know one could probably find this information through an examination of publicly available corporate filings of such insurers. My point being, if a company is insisting on servicing agreements to save money and they are in turn making money on the securitizations perhaps some consideration for "the little guy" is in order.