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All State and Federal Regulations of Structured Settlements

Written By: author image Bara Goldberg
author image Bara Goldberg
Bara Goldberg - Amanda Dobanton Esq. is a General Counsel for Fairfield Funding. She has been crucial to the growth of Fairfield Funding for the past 9 years. Prior to Fairfield, she interned at a law firm in Gwinnett County. Ms. Dobanton received a B.S. in History and Political Science from Brenau University and went on to obtain her Juris Doctorate Degree from Atlanta’s John Marshall Law School. Amanda is currently serving on the Board for the National Association of Settlement Purchasers. Amanda is a seasoned expert in the structured settlement and annuity field.
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Structured Settlements

Structured settlements provide financial security to injury victims and their families. When a person receives a structured settlement as part of a legal claim, they receive regular payments over a set period. However, selling or transferring these payments can be complex and subject to various state and federal regulations. In this blog post, we’ll provide a comprehensive overview of the laws and regulations governing structured settlements to help recipients understand their rights and protections.

Background on Structured Settlements

A structured settlement is an arrangement where a person receives periodic payments as compensation for damages in a legal claim, often in cases involving personal injury or wrongful death. These settlements are designed to provide long-term financial stability and can be customized to meet the recipient’s individual needs.

Structured settlements are commonly funded through specialized annuity contracts issued by life insurance companies. According to the North Carolina Superior Court Judges 2008 Summer Conference, over $6 billion in new structured settlements are funded yearly in the United States, with an estimated $100 billion in active structured settlements currently in place.

The Need for Structured Settlement Protection Acts

While structured settlements offer many benefits, recipients may sometimes face financial pressures that lead them to consider selling or transferring their future payment rights. This created a market for factoring companies that purchase structured settlement payments in exchange for a lump sum.

However, some factoring companies engaged in predatory or abusive practices, taking advantage of vulnerable settlement recipients. To address these concerns, state and federal lawmakers enacted structured settlement protection acts (SSPAs) to regulate the sale and transfer of structured settlement payment rights.

Federal Structured Settlement Laws and Regulations

The primary federal law governing structured settlements is the Victims of Terrorism Tax Relief Act of 2001. This law includes provisions to protect structured settlement recipients and Internal Revenue Code Section 589 imposes a 40% excise tax on factoring companies that acquire structured settlement payment rights without court approval.

State Structured Settlement Protection Acts

In addition to federal law, nearly all states have enacted their own structured settlement protection acts. While the specific provisions of these laws vary, they generally include the following key features:

  • Disclosure statements: Factoring companies must provide payees with detailed disclosures about the terms of the proposed transfer, including the amounts being sold, the net proceeds to be received, and any fees or expenses deducted from the payee’s funds.
  • Judicial or administrative approval: Proposed transfers of structured settlement payment rights must be approved by a court or responsible administrative authority before they can be completed. This helps ensure that the transfer is in the best interest of the payee and complies with all legal requirements.
  • Express findings: To approve a transfer, courts must make express findings on issues such as the payee’s understanding of the transaction, the presence of any undue influence or coercion, and the need for the transfer to avoid imminent financial hardship.
  • Right to cancel: Most SSPAs give payees a limited period of time to cancel a transfer agreement after signing, without penalty or obligation.
  • Anti-assignment provisions: Some state laws prohibit or restrict further transfers of structured settlement payment rights by payees who have already completed a sale or assignment.

The National Association of Settlement Purchasers has developed a model SSPA that many states have used as a template for their own laws. However, individual states may have additional or unique provisions. For example, some states require court-appointed guardians ad litem or independent professional advice for payees who are minors or lack legal capacity.

The Structured Settlement Payment Transfer Approval Process

The process for seeking approval of a structured settlement payment transfer typically involves the following steps:

  • The payee and factoring company negotiate the terms of the proposed transfer and execute a transfer agreement.
  • The factoring company files a petition or application with the appropriate court or administrative authority, seeking approval of the transfer.
  • Notice of the proposed transfer is provided to all interested parties, including the settlement obligor and annuity issuer.
  • The court or administrative authority holds a hearing on the proposed transfer, where the payee and any interested parties can present evidence and arguments.
  • The court or administrative authority issues a decision either approving or denying the proposed transfer based on the applicable legal standards.

The approval process can take several weeks or months, depending on the jurisdiction and the complexity of the case.

Disclosures and Notices in Structured Settlement Payment Purchases

Structured settlement protection acts typically require factoring companies to provide payees with detailed disclosure statements as part of the transfer process. These disclosures must include:

  • The amounts and due dates of the payments being transferred
  • The aggregate amount of the transferred payments
  • The gross amount payable to the payee
  • An itemized listing of all commissions, fees, expenses, and charges deducted from the gross amount
  • The net amount payable to the payee after deducting applicable fees and expenses
  • The discount rate used to determine the net payable amount
  • The amount of any penalties or liquidated damages payable by the payee for breaching the transfer agreement

In addition, most SSPAs prohibit factoring companies from requiring payees to sign confessions of judgment or consent to entry of judgment as part of a transfer agreement. This helps protect payees from unfair or abusive collection practices if a dispute arises.

Conclusion

Structured settlement protection acts play a vital role in safeguarding the rights of settlement recipients and ensuring that transfers of payment rights are fair, transparent, and in the best interest of payees. 

At Fairfield Funding, we are committed to helping structured settlement recipients access liquidity while providing the highest standards of service, transparency, and compliance. We work diligently to protect our clients’ interests every step of the way.

Additional Resources

For more information on structured settlements and the laws and regulations governing payment transfers, please visit:

If you have questions about selling or transferring your structured settlement payments, please contact Fairfield Funding today at XXX for a free, no-obligation consultation.

Glossary

  • Annuity issuer: The life insurance company that issues the annuity contract used to fund a structured settlement.
  • Factoring company: A company that purchases the rights to receive future structured settlement payments in exchange for a lump sum.
  • Payee: The person entitled to receive payments under a structured settlement.
  • Structured settlement: An arrangement where a person receives periodic payments as compensation for damages in a legal claim.
  • Transfer: The sale or assignment of the right to receive future structured settlement payments
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Bara Goldberg Finance Writer
Bara Goldberg - Amanda Dobanton Esq. is a General Counsel for Fairfield Funding. She has been crucial to the growth of Fairfield Funding for the past 9 years. Prior to Fairfield, she interned at a law firm in Gwinnett County. Ms. Dobanton received a B.S. in History and Political Science from Brenau University and went on to obtain her Juris Doctorate Degree from Atlanta’s John Marshall Law School. Amanda is currently serving on the Board for the National Association of Settlement Purchasers. Amanda is a seasoned expert in the structured settlement and annuity field.
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Structured Settlements Annuities Personal Finance
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Bara Goldberg

Amanda Dobanton Esq. is a General Counsel for Fairfield Funding. She has been crucial to the growth of Fairfield Funding for the past 9 years. Prior to Fairfield, she interned at a law firm in Gwinnett County. Ms. Dobanton received a B.S. in History and Political Science from Brenau University and went on to obtain her Juris Doctorate Degree from Atlanta’s John Marshall Law School. Amanda is currently serving on the Board for the National Association of Settlement Purchasers. Amanda is a seasoned expert in the structured settlement and annuity field.

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