Security Interest Transfers Usually Fall Within The Scope Of Structured Settlement Protection Act Provisions

Security Interest Transfers Usually Fall Within The Scope Of Structured Settlement Protection Act Provisions

As described here, a recent opinion from a federal magistrate judge in Ohio considered whether the Ohio Structured Settlement Protection Act applied to a transfer of both a security interest and the right to collect payments pledged as collateral.

Because the transfer of the right to collect the payment was, as well as the transfer of the security interest, were agreed to prior to the effective date of the Ohio SSPA, the SSPA did not apply in that case, the magistrate concluded.

Had the agreements occurred after the effective date of that statute, then the Ohio SSPA would have applied.

That is something that is clear from the text of the Ohio SSPA, which provides that a transfer includes not only a sale or assignment, but also any “pledge, hypothecation, or any other form of alienation or encumbrance of structured settlement payment rights made by a payee for consideration.”

Most other SSPAs follow language from the National Conference of Insurance Legislators Model Structured Settlement Protection Act, which language was adopted after the legislation that became the Ohio SSPA was written.  Under the Model SSPA, a “transfer” is defined as follows:

‘transfer’ means any sale, assignment, pledge, hypothecation or other alienation or encumbrance of structured settlement payment rights made by a payee for consideration; provided that the term ‘transfer’ does not include the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution, in the absence of any action to redirect the structured settlement payments to such insured depository institution, or an agent or successor in interest thereof, or otherwise to enforce such blanket security interest against the structured settlement payment rights . . . .

Model Structured Settlement Protection Act (available here), Section 2(r).  Thus, as the Model SSPA demonstrates, all transfers of security interests – except those that fall within the narrow exception set forth in definition of “transfer” – come within the scope of an SSPA.

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