Volume 2, Number 3
|Table of Contents|
Lawyers To the Rescue
Like an actor after a brilliant performance, sometimes the legal profession deserves to take a bow.
In recent years, an astonishing 43 state legislatures and the federal government have enacted laws to protect tort victims receiving structured settlement payments from abusive practices by companies trying to buy their payments. These state laws collectively complement enactment in 2002 of a tough federal consumer protection law (Public Law No. 107-134, 115 Stat. 2427) that offers further protection for injury victims.
In large part, the federal and state laws came about because attorneys from across the legal spectrum joined together to demand action. As Tyler Thompson, past president of the Kentucky Academy of Trial Attorneys, puts it, “It really didn’t matter whether you worked with the defense or plaintiff. This was a clear-cut matter of the law not adequately protecting vulnerable citizens and everyone recognized that action had to be taken.”
Structured settlements are enjoying a renaissance, with annual funding premiums rising nearly 50 percent since 1998.
The driving force is not hard to see. Terrorism fears and anemic stock market returns have left everyone wondering how to achieve long-term financial security. Structured settlements guarantee it.
That’s why the timing of the state and Federal actions couldn’t be better. In recent years, factoring companies have blitzed the airwaves, enticing tort victims to sell their payments for quick cash. According to government documents, one company alone bought nearly 90,000 television ads during an 18-month period – which helped drive its purchases of structured settlement payment streams to more than $430 million.
Along with this furious growth came major problems: hidden fees, strong-arm sales tactics, one-sided contracts, and discount rates as high as 80 percent (meaning the injury victim received barely 20 cents per dollar of payment).
Robert E. Sanders, a Governor of the Association of Trial Lawyers of America, speaks for many plaintiff attorneys when he says, bluntly, “This was an outrage. We sweat blood to gain a good settlement for these poor people and purposely set the money in a structure for their security. Then some company would entice them to sell their payments for 60 cents on the dollar.”
In 1997, Illinois became the first state to pass a consumer protection law against abusive practices. The next year, Kentucky and Connecticut followed. In 1999 and 2000, the floodgates opened as 27 more states passed laws mandating new protections.
That set the stage for Congress and the White House to act. Under the federal law, a company trying to purchase a victim’s structured settlement payments must first gain state court approval. Otherwise, that company must pay a whopping 40 federal percent excise tax on the difference between the undiscounted amount of the payments being acquired and the amount actually paid to the victim.
The word “undiscounted” is crucial. Say a company tries to buy $1000 per month from an accident victim for the next 100 months. Previously that company might have argued that the “present value” of those eight years of payments might be only $80,000 because of the uncertainty that inflation may reappear.
Under the new law, however, the company is legally bound to value those payments at the full $100,000 – even though some payments will not be made until 2012.
The law also mandates full disclosure to the state court of any dependents the victim may have and their welfare. That prevents a parent or guardian from selling payments meant for a minor, without informing the court.
Finally, the federal law instructs that judges may not approve transactions that “contravene… state statutes.” Since nearly every state prohibits the transfer of workers compensation payments, injured workers have a necessary new financial protection.
Congress, the President and 43 states have done the country a great service. Perhaps equally important, the legal community deserves its well-deserved bow. Congress and the states acted because an unprecedented coalition of lawyers nationwide – both plaintiff and defense – came together to demand action.
“This was a true labor of love,” says attorney Richard D. Lawrence, past president of the Kentucky Academy of Trial Attorneys and ATLA Board of Governors. “No one stood to gain financially from this new law. But they were willing to take action because, deep down, they recognized that it was the right thing to do.”
Since the legal profession has suffered its share of black eyes in recent years, it seems only right to offer kudos for helping enact such strong new consumer protections for structured settlement recipients.