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Report after report finds that payday lenders, auto title loan firms and pension advance operations unfairly target vulnerable consumers with high fees and questionable terms, but a new investigative piece from The Washington Post shows that are some lesser-known, but very lucrative players offering quick cash to vulnerable consumers: structured settlement purchasing companies.
The Washington Post details how this industry has settled into impoverished areas of Maryland, buying hundreds of thousands of dollars in structured settlement payments for pennies on the dollar, sometimes with very negative financial outcomes for struggling, disabled consumers.
Here’s how it works: when a consumer sues a company or an individual and wins their case, they are often provided some kind of settlement.
Traditionally, these settlements are paid in an immediate lump sum. But in some cases, a structured settlement may be agreed upon. The consumer then receives regular payments for a set time period. Such settlements can be structured to last decades, and for the victims of childhood lead poisoning, an injury that can cause life-long mental impairment, a structured settlement can provide long-term stability.
They may sound uncommon, but these structured settlements are big business. Insurance companies have committed an estimated $350 billion to the settlements since 1975.
As a result, a secondary market has sprung up in which firms compete to purchase the rights to those payments in exchange for providing a cash lump sum that is less than the total value the consumer would be entitled to for the life of the settlement.
Those who support this market contend the companies provide needed funds to help cash-strapped people buy homes, go to schools and pay medical bills. But consumer advocates argue the companies are turning a profit at the expensive of very vulnerable populations.
We really recommend that you head over and read the entire report from the Post, but here are the 10 things we learned from the exposé:
1. Though the cause of the phenomenon is in dispute, Baltimore seems to have become a something of a hotbed for companies seeking to buy structured settlements from disabled persons – especially those affected by childhood lead poisoning. Such injuries can lead to life-long mental impairment, which may affect the consumers’ ability to understand the deals they are making with structured settlement buyers.
2. While Maryland signed the Structured Settlement Protection Act into effect in 2000 to better protect consumers, critics say the measure is failing, with companies finding loopholes that put consumers at risk. The bill outlines several requirements that must be met before payments can be signed away, including a stipulation that sellers speak to an independent advisor before selling their payments. But, as the Post shows, these meetings sometimes provide little help to the seller.
3. One such independent advisor tells the Post that he generally doesn’t go “over the terms of the contract. That wasn’t my function. I don’t think any of the other lawyers do that, or else they would never get any repeat business.” His advising was mostly done over the phone and took less than a minute.
The Post reports that some independent advisors, while they don’t work for a purchasing company, often deal with the same businesses over and over, cultivating close relationships. Critics say this presents a conflict of interest that puts consumers at risk.
4. While there are several settlement purchasing companies in the state and across the U.S., the Post focuses on one that appears to operating heavily in Baltimore: Access Funding.
A review of court records, interviews with industry insiders and victims, found that since 2013 Access Funding has filed nearly 200 structured settlement purchases in Maryland. A majority of those cases involved victims of lead poisoning. In all, the sample of cases reviewed by the Post found Access Funding petitioned to purchase $6.9 million worth of future payments for just $1.7 million.
5. In 52 of those deals, the Post found that on average Access Funding paid just 33-cents on the present value of a dollar, or sometimes less. In one case a 24-year-old lead victim sold nearly $327,000 worth of payments for less than $16,200 — or about 9-cents on the dollar.
6. Another example includes an entire family that had been awarded settlements related to lead paint poisoning. In all, the family relinquished $435,000 of their settlement for about $54,000 – or less than 20-cents on the dollar – to Access Funding.
7. Perhaps the most heartbreaking case reported by the Post is that of Vincent, a 25-year-old who grew up in a house that doctors called a “lead pit,” with the level of lead in his blood stream often being three times that of what is considered “elevated.” One medical professional couldn’t determine whether the man was “severely disabled” or just “generally disabled” as a result.
As with other examples cited by the Post, the man sold some of his payments to Access Funding. According to the Post, in an affidavit written by the company and signed by the man in 2013, he sold $90,000 of his settlement for $26,000 to “purchase a vehicle.” The money, the affidavit said, would also be used to “look for work and also need furniture, clothes, school supplies for my young daughter.” But the man doesn’t have a daughter, he has a son. And he doesn’t have a driver’s license.
After that settlement, the man attempted to complete two other sales, one that was eventually dismissed. As with the previous deals, the affidavits included perplexing statements, such as the man didn’t want to incur costs of renting any longer, or that he wanted to make a purchase of a home. However, he had just purchased a home and hadn’t needed to pay rent for months.
In all, he was willing to let go $663,000 of his lead paint settlement for just $50,000. When asked about the settlements by a Post reporter, the man asked “what settlement.”
8. While all of these deals must receive the approval of a court, the Post points out that Maryland law doesn’t require the settlement recipient to show up in court. As a result, many cases take just minutes to become finalized. In fact, one judge has overseen 160 petitions from Access Funding, approving the requests almost 90% of the time.
9. An executive for Access Funding defended the company’s affidavits and petitions.
“What we do is provide equity for those people to buy homes,” he said, noting that the company had no reason to think those who had signed onto deals were impaired or unable to understand what they were doing.
The man says the company doesn’t target lead victims and that Baltimore’s glut of lead-paint lawsuits has artificially inflated the company’s business in the city. Still, he tells the Post that he would welcome stricter legislation and oversight, simply so the company can secure themselves “in the future from any potential questions like this again, so we can say, ‘No, that’s not us.’”
10. Lawmakers are attempting to put an end to these situations by calling for tighter restrictions on the structured settlement purchasing industry. The Post reports that following its exposé on the industry, Members of the House of Delegates and Attorney General Brian E. Frosh pressed for increased scrutiny of these transactions.
How companies make millions off lead-poisoned, poor blacks [The Washington Post]
Md. lawmakers want tougher legislation for settlement purchases [The Washington Post]
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