Protections For Consumers
Most states have certain protections in place for those selling structured settlement payments to a third party. All state laws regarding such transfers differ slightly. In general, however, all state regulations require:
- Full disclosure from structured settlement buyers: Funding companies are obligated to provide a disclosure that includes all of the terms of the transaction in a very clear and concise manner for the protection of the seller.
- A “cooling off period:” The seller must be allowed a period of time during which s/he can reconsider the decision to sell structured settlement payments
- Court approval: all sales or transfers of annuities or structured settlement payments must have the approval of a judge. This approval will depend largely upon the seller’s unique financial situation and whether or not it is determined that such a sale is in the seller’s best interests.
You can learn more about the Pennsylvania structured settlement protection act below:
40 P.S. §4002-4008 (2001)
AN ACT
1 Regulating certain transfers of structured settlement payments.
2 The General Assembly of the Commonwealth of Pennsylvania
3 hereby enacts as follows:
4 Section 1. Short title.
5 This act shall be known and may be cited as the Structured
6 Settlement Protection Act.
7 Section 2. Definitions.
8 The following words and phrases when used in this act shall
9 have the meanings given to them in this section unless the
10 context clearly indicates otherwise:
11 “Annuity issuer.” An insurer, or subsidiary or affiliate
12 thereof, that has issued an insurance contract used to fund
13 periodic payments under a structured settlement.
14 “Applicable law.” The laws of the United States, the laws of
15 this Commonwealth and the laws of any other jurisdiction under
16 whose laws a structured settlement agreement was approved by a
1 court or responsible administrative authority.
2 “Best interests.” The standard applicable to transfers of
3 structured settlement payment rights based on judicial findings
4 regarding the payee and his dependents, as required by section
5 3(3), unless if at the time the payee and the transferee enter
6 into the transfer agreement, a different standard is contained
7 in the Internal Revenue Code of 1986 (Public law 99-514, 26
8 U.S.C. § 1 et seq.) or in a United States Treasury regulation
9 adopted pursuant thereto, then such different standard.
10 “Dependents.” Include a payee’s spouse and minor children
11 and all other family members and other persons for whom the
12 payee is legally obligated to provide support, including
13 alimony.
14 “Discounted present value.” The fair present value of future
15 payments, as determined by discounting such payments to the
16 present using the most recently published applicable Federal
17 rate for determining the present value of an annuity, as issued
18 by the United States Internal Revenue Service.
19 “Favorable tax determination.” With respect to a proposed
20 transfer of structured settlement payment rights, any of the
21 following authorities that is binding on the parties to such
22 transfer and on the parties to the structured settlement
23 agreement and any qualified assignment agreement and that
24 definitively establishes that the Federal income tax treatment
25 of the structured settlement for the parties to the structured
26 settlement agreement and any qualified assignment agreement,
27 other than the payee, will not be affected by such transfer:
28 (1) a provision of the Internal Revenue Code of 1986
29 (Public Law 99-514, 26 U.S.C. § 1 et seq.) or United States
30 Treasury regulation;
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1 (2) a published ruling by the United States Internal
2 Revenue Service;
3 (3) a private letter ruling by the United States
4 Internal Revenue Service with respect to such transfer; or
5 (4) other controlling legal authority that is binding on
6 the United States Internal Revenue Service.
7 “Payee.” A person domiciled in this Commonwealth who is
8 receiving tax-free payments under a structured settlement and
9 proposes to make a transfer of payment rights thereunder.
10 “Periodic payments.” Payments made pursuant to a structured
11 settlement agreement, including scheduled future lump sum
12 payments.
13 “Qualified assignment agreement.” An agreement providing for
14 a qualified assignment within the meaning of section 130 of the
15 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1
16 et seq.).
17 “Settled claim.” The original personal injury or sickness
18 claim or workers’ compensation claim resolved by a structured
19 settlement.
20 “Structured settlement.” An arrangement for periodic payment
21 of damages established by settlement, judgment or decree in
22 resolution of a settled claim.
23 “Structured settlement agreement.” The agreement, judgment,
24 decree, stipulation or release embodying the terms of a
25 structured settlement, including the rights of the payee to
26 receive periodic payments.
27 “Structured settlement obligor.” With respect to any
28 structured settlement, the party that has the continuing
29 obligation to provide periodic payments to the payee under a
30 structured settlement agreement or a qualified assignment
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1 agreement.
2 “Structured settlement payment rights.” Rights to receive
3 periodic payments under a structured settlement, whether from
4 the settlement obligor or the annuity issuer, where the payee is
5 domiciled in this Commonwealth.
6 “Terms of the structured settlement.” Include, with respect
7 to any structured settlement, the terms of the structured
8 settlement agreement, the annuity contract, any qualified
9 assignment agreement and any order, decree or approval of any
10 court, or responsible administrative authority authorizing or
11 approving such structured settlement.
12 “Transfer.” Any direct or indirect sale, assignment, pledge,
13 hypothecation or other form of alienation, redirection or
14 encumbrance made by a payee for consideration, provided,
15 however, that this shall not apply to a blanket security
16 agreement used to secure a loan originating from a Federal or
17 State-chartered lending institution. Any transfer made or agreed
18 to under this act shall be considered to be a consumer
19 transaction.
20 “Transfer agreement.” The agreement providing for transfer
21 of structured settlement payment rights from a payee to a
22 transferee.
23 “Transferee.” The party acquiring or proposing to acquire
24 structured settlement payment rights through a transfer.
25 Section 3. Conditions to transfers of structured settlement
26 payment rights.
27 (a) Petition.–No transfer of structured settlement payment
28 rights shall be effective and no structured settlement obligor
29 or annuity issuer shall be required to make any payment to any
30 transferee of structured settlement payment rights unless the
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1 payee has filed a petition requesting such transfer and the
2 petition has been granted by final order or decree of a court of
3 competent jurisdiction based on such court’s express written
4 findings that:
5 (1) The transfer complies with the requirements of this
6 act and will not contravene other applicable Federal or State
7 statutes or regulations or any applicable law limiting the
8 transfer of workers’ compensation claims.
9 (2) Not less than ten days prior to the date on which
10 the payee first incurred any obligation with respect to the
11 transfer, the transferee has provided to the payee a
12 disclosure statement setting forth all of the following:
13 (i) The amounts and due dates of the structured
14 settlement payments to be transferred.
15 (ii) The aggregate amount of such payments.
16 (iii) The discounted present value of such payments,
17 together with the discount rate or rates used in
18 determining such discounted present value.
19 (iv) The gross amount payable to the payee in
20 exchange for such payments.
21 (v) An itemized listing of all brokers’ commissions,
22 service charges, application or processing fees, closing
23 costs, filing or administrative charges, legal fees,
24 notary fees and other commissions, fees, costs, expenses
25 and charges payable by the payee or deductible from the
26 gross amount otherwise payable to the payee.
27 (vi) The net amount payable to the payee after
28 deduction of all commissions, fees, costs, expenses and
29 charges described in subclause (v).
30 (vii) The quotient, expressed as a percentage,
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1 obtained by dividing the net payment amount by the
2 discounted present value of the payments.
3 (viii) The amount of any penalty and the aggregate
4 amount of any liquidated damages, inclusive of penalties,
5 payable by the payee in the event of any breach of the
6 transfer agreement by the payee.
7 (3) The payee has established that the transfer is in
8 the best interests of the payee or his dependents.
9 (4) The payee has RECEIVED, OR expressly waived, in a <–
10 separate written acknowledgment signed by the payee,
11 independent legal advice regarding the implications of the
12 transfer, including consideration of the tax ramifications of
13 the transfer.
14 (5) If the transfer would contravene the terms of the
15 structured settlement:
16 (i) the transfer has been expressly approved in
17 writing by:
18 (A) the payee, the structured settlement obligor
19 and the annuity issuer; provided, however, that such
20 approval may not be unreasonably withheld; and,
21 further provided that the structured settlement
22 obligor and the annuity issuer shall be required to
23 consent to the transfer if the transferee has agreed
24 to indemnify the structured settlement obligor and
25 annuity issuer from all liabilities arising from the
26 factoring transaction and compliance or noncompliance
27 with this act and further provided that if at the
28 time the payee and the transferee propose to enter
29 into the transfer agreement, a favorable tax result
30 is in effect, then the approval of the annuity issuer
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1 and the structured settlement obligor shall not be
2 required; and
3 (B) any court or responsible administrative
4 authority that previously approved the structured
5 settlement; and
6 (ii) signed originals of all approvals required
7 under subparagraph (i) have been filed with the court
8 from which the authorization of the transfer is being
9 sought, and originals or copies have been furnished to
10 the payee, the structured settlement obligor and the
11 annuity issuer.
12 (6) The payee has given written notice of the
13 transferee’s name, address and taxpayer identification number
14 to the annuity issuer and the structured settlement obligor
15 and has filed a copy of such notice with the court.
16 (b) Notice.–Prior to entering into any agreement to make a
17 transfer under this act, the payee shall be provided with a
18 written notice on a separate sheet that contains the following,
19 in bold print and at least 12-point type:
20 IMPORTANT NOTICE: You are strongly urged to consult with
21 an attorney who can advise you of the potential tax
22 consequences of this transaction.
23 (c) Bonds.–If the indemnity in subsection (a)(5)(i)(A) is
24 offered, the court shall require that the transferee obtain a
25 surety bond or an irrevocable standby letter of credit to secure
26 the indemnity obligation. In considering the necessity and
27 amount of any bond, the court shall consider the size of the
28 underlying transaction and the potential liabilities of the
29 structured settlement obligor and annuity issuer.
30 Section 4. Jurisdiction; procedure for approval of transfers.
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1 The court of common pleas of the judicial district in which
2 the payee is domiciled shall have jurisdiction over any petition
3 as required under section 3 for a transfer of structured
4 settlement payment rights. Not less than 20 days prior to the
5 scheduled hearing on any petition for authorization of a
6 transfer of structured settlement payment rights under section
7 3, the payee shall file with the court and serve on the
8 transferee a notice of the proposed transfer and the application
9 for its authorization, including in such notice a copy of the
10 payee’s petition to the court, a copy of the transfer agreement,
11 a copy of the disclosure statement required under section 3,
12 notification that the transferee, the structured settlement
13 obligor or the annuity issuer is entitled to support, oppose or
14 otherwise respond to the payee’s petition, either in person or
15 by counsel, by submitting written comments to the court or by
16 participating in the hearing and notification of the time and
17 place of the hearing and notification of the manner in which and
18 the time by which written responses to the petition must be
19 filed, which shall be not less than 20 days after service of the
20 payee’s notice, in order to be considered by the court.
21 Section 5. Discharge of structured settlement obligor and
22 annuity issuer.
23 Upon an appropriate judicial order approving a petition for a
24 transfer of structured settlement payment rights, the structured
25 settlement obligor and annuity issuer shall be discharged from
26 all liability for the payments and portions thereof transferred
27 as to all parties except the transferee.
28 Section 6. No waiver; no penalties.
29 (a) Waiver.–The provisions of this act may not be waived.
30 (b) Penalties.–No payee who files a petition for the
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1 transfer of structured settlement payment rights shall incur any
2 penalty, forfeit any application fee or other payment, or
3 otherwise incur any liability to the proposed transferee based
4 on any failure of such transfer to satisfy the conditions of
5 section 3.
6 Section 7. Penalty.
7 A violation of this act shall be deemed a violation of the
8 act of December 17, 1968 (P.L.1224, No.387), known as the Unfair
9 Trade Practices and Consumer Protection Law.
10 Section 8. Construction.
11 Nothing contained in this act shall be construed to authorize
12 any transfer of structured settlement payment rights in
13 contravention of applicable State statutes or regulations or to
14 give effect to any transfer to structured settlement payment
15 rights that is void under applicable State statutes or
16 regulations.
17 Section 9. Applicability.
18 This act shall apply to any petition for the transfer of
19 structured settlement payment rights under a transfer agreement
20 sought on or after the effective date of this act, provided,
21 however, that nothing contained in this act shall imply that any
22 transfer under a transfer agreement reached prior to such date
23 is effective or that any party is under any obligation to make
24 transferred payments to the transferee of any such prior
25 transfer.
26 Section 10. Effective date.
27 This act shall take effect in 60 days.