Structured Settlement Protection Act

Federal and State legislation protects people receiving periodic payments by adding consumer safeguards and transparency to the structured settlement selling process.

Legislation protects the rights of structured settlement owners by providing rules on receiving advice, as well as requiring full disclosure of fees associated with selling payments.

After several states passed their own versions of Structured Settlement Protection Act (SSPA), Congress passed the Victims of Terrorism Compensation Act. 

This federal level legislation was created shortly after victims of the 9/11 disaster received financial awards as compensation for the terrorist acts. Within this legislation were the first federal-level regulations on the sale of structured settlement payments.

State level Structured Settlement Protection Acts, as well as the federal legislation, include provisions to help those selling their payments understand what they’re doing when they sell future payment rights to structured settlement buyers.

Protections on a state and federal level include:

  • Someone selling payments should receive professional advice on the financial advantages and disadvantages of a lump-sum payment.
  • A person has the right to change their mind and cancel within a pre-determined time frame. The time frame varies from state to state.
  • That a seller must receive full disclosure of payment information, including expense and fees incurred as a result of the transaction.
  • A requirement that a transaction must go to a state court for approval. A state judge will determine if the conditions of the agreement are in the best economic interests of the seller before approving the sale.
  • That a 40-percent federal excise tax gets applied if the transfer of payment rights doesn’t receive the required court approval.

Protective legislation also restricts the ability of recipients of a structured settlement to have the insurance company that issued the settlement convert the long-term, periodic payments into a lump-sum payout.

Protections Against Exploitation

Introduced in the 1970s, structured settlements quickly became a popular – even preferred – method of payment in court cases involving severe physical injuries, sickness and workers’ compensation cases.

They offered long-term financial protection for those who were injured and possibly at risk. By having a set amount, it helped people manage a significant amount of money intended to last a lifetime.

However, in the 1990s, some purchasers began taking advantage of those receiving settlement payments. These predatory companies took advantage of people who didn’t understand the present value of their future payments,  the fees associated with the transaction and size of the discounts taken from payments.

This meant that accident victims and the chronically ill were in some cases completely giving up their long-term financial resources. Some recipients made careless financial choices with the lump-sum payments they received and the money was squandered in a short period of time.

As their residents suffered more and more, states began to recognize the problem. In 1997, Illinois and New Jersey enacted laws protecting against these financial abuses.

State laws introduced the first consumer protections. The most significant was the protection requiring sales to be approved by a judge. The allowed the court process to ensure a positive outcome for the seller and the seller’s dependents by making sure the sale was truly in the best interest of the person selling their payments.

Time went on and other states jumped on board, and in 2002 the federal government passed the SSPA.

Since, 43 states enacted their versions of the Structured Settlement Protection Act. Some states have specific exceptions.

West Virginia Exception

Court approval in West Virginia has a special condition for court approval not found in the federal law. Court approval is required for structured settlement transfers if the case arises from a personal injury or other claim and the amount exceeds $40,000. There is also a provision in the agreement which restricts the right of the consumer to assign or transfer their future payment rights.

The Structured Settlement Protection Acts of Individual States

  • Alabama: The seller must receive detailed financial and legal disclosures before transferring payment rights.
  • Alaska: The purchaser must disclose key terms to seller. The seller must also receive independent professional advice regarding implications of the transfer.
  • Arizona: The seller must receive written advice to seek independent professional advice.
  • California: The purchaser must advise sellers of their right to seek legal counsel in connection with transfer petition and to advise that purchaser will pay fees of seller’s counsel up to $1,500. Copy of the transfer agreement must be filed with the California Office of the Attorney General. Transfers of structured settlements related to workers compensation benefits are not allowed.
  • Colorado: Sellers must receive advice in writing to seek independent professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.
  • Connecticut: A seller must receive advice in writing to seek independent professional advice.
  • Delaware: Sellers must receive independent financial advice.
  • Florida: Sellers must receive independent financial advice. Transfers of structured settlements related to workers compensation benefits are not allowed.
  • Georgia: Sellers have 21 days to cancel their sale.
  • Hawaii: Buyers must disclose key terms to payee.
  • Idaho: The purchaser must advise sellers to seek professional advice. Transfers of structured settlements related to workers compensation benefits are not allowed.
  • Illinois: The purchaser must advise seller to seek professional advice.
  • Indiana: No transfer of structured settlements related to workers compensation benefits is permitted.
  • Kansas: No transfer of structured settlements related to workers compensation benefits is permitted.
  • Kentucky: Disclosure of key terms to consumer is required. Cannot transfer structured settlements related to workers compensation benefits.
  • Louisiana: Written disclosure of the terms of the financial transaction are required to appear in no smaller than 14 point font.
  • Maine: A seller is required to receive independent professional advice. Interested parties must consent to transfer if settlement documents prevent assignment of payments.
  • Maryland: A seller must receive independent professional advice. The transfer of structured settlements related to workers compensation benefits is forbidden.
  • Massachusetts: Sellers must receive independent professional advice.
  • Michigan: Sellers must receive independent professional advice. Interested parties must consent to transfer if settlement documents prevent assignment of payments. Discount or interest cannot exceed 25 percent per year. The transfer structured settlements related to workers compensation benefits is not permitted.
  • Minnesota: Sellers must receive independent professional advice. The transfer of settlements related to workers compensation benefits is forbidden.
  • Mississippi: Purchasers must advise a seller in writing to seek professional advice.
  • Missouri: The court must find that payments made to seller equal “the fair market value of the structured settlement rights being transferred.” Cannot transfer structured settlements related to workers compensation benefits.
  • Montana: A seller cannot transfer structured settlements related to workers compensation benefits.
  • Nebraska: A seller cannot transfer structured settlements related to workers compensation benefits. Buyers must notify sellers of their right have professional advice. Discount or finance charges cannot exceed maximum interest rate for a consumer loan.
  • New Jersey: Sellers must be notified of right to professional advice.
  • New York: Sellers must be notified of right to professional advice. Transfer agreement may not require seller to pay the purchaser’s attorneys’ fees or costs if a transfer is not completed, or any federal tax liability (other than the payee’s own tax liability). Transfers of structured settlements related to workers compensation benefits are not allowed.
  • North Carolina: Sellers must receive professional advice. Discount or interest rates cannot exceed prime plus 5 percent, and fees cannot exceed 2 percent of net amount payable to payee. Sellers cannot transfer structured settlements related to workers compensation benefits.
  • Ohio: Sellers must receive independent professional advice. Sellers cannot transfer structured settlements related to workers compensation benefits.
  • Oklahoma: Purchasers must advise a seller in writing to seek professional advice.
  • Pennsylvania: Purchasers must advise a seller to seek professional advice or sign waiver of advice.
  • Rhode Island: Purchasers must advise a seller to seek professional advice.
  • South Carolina: The purchaser must advise a seller in writing to seek professional advice. Sellers cannot transfer structured settlements related to workers compensation benefits.
  • South Dakota: Purchasers must advise seller to seek professional advice.
  • Tennessee: Purchasers must advise seller to seek professional advice. Sellers cannot transfer structured settlements related to workers compensation benefits.
  • Texas: A purchaser must advise sellers in writing to seek professional advice.
  • Utah: Purchasers must advise sellers in writing to seek professional advice.
  • Virginia: A purchaser must advise a seller in writing to seek professional advice.
  • Washington: A purchaser must advise a seller in writing to seek professional advice.
  • West Virginia: Sellers must wait 14 additional days before a sale can go through.

Page Sources

  1. Internal Revenue Service (2009). Structured Settlement Factoring Audit Technique Guide. Retrieved from http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Structured-Settlement-Factoring-Audit-Technique-Guide-ATG
  2. 4Structures (2012). Structured Settlement Protection Statutes. Retrieved from http://www.4structures.com/4structures/front/resources/template/resources_structured-settlement-protection-act.jsp
  3. Internal Revenue Code (ND). Structured Settlement Factoring Transactions. Retrieved from http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleE-chap55.pdf
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