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Consumer Financial Protection Bureau Issues Warning about Structured Settlement Factoring Transactions

The federal Consumer Financial Protection Bureau has issued a “warning” to consumers about structured settlement factoring transactions.

The CFPB – which has become more and more involved in seeking to regulate structured settlement factoring, including litigating in two currently-pending lawsuits against structured settlement factoring companies – this month issued the consumer warning about “What should I know before giving up my monthly disability, personal injury or structured settlement payments in exchange for a one-time lump sum payment?”

The CFPB’s web page “warning” includes the following statements:

  • “What happens when you give up your structured settlement?  Usually, you get one lump sum payment upfront.  However, you’re permanently giving up your right to receive your payments under the structured settlement.  The lump sum will be much less than you would get in regular payments over time from your structured settlement.  The payments you would have received go to the company that took over your structured settlement and you won’t be entitled to any more monthly payments.”
  • “Why not take a lump sum?  It can be a bad deal for you because you may be getting a lot less money than you would get over time.  By giving up your structured settlement, you are signing over the right to these guaranteed payments and money that you may need for your monthly expenses for the one-time benefit of receiving a lump sum.  Potential risks to taking a lump sum include: spending your lump sum payment quickly and not having money for living expenses later; losing it in an investment; or someone trying to take or borrow the money from you.  Monthly payments don’t have those risks.  Monthly payments may give you the needed stability to manage your finances, to pay your rent or mortgage, and to pay your bills.  Take a hard look at your ability to manage money before you accept one of these deals.  Make sure you have a plan in place for how you will pay your monthly expenses without the benefit of monthly payments from your structured settlement.”
  • Do you have other options? If you are having trouble paying your bills and see a lump sum payment as an opportunity to get out of debt, first contact your creditors to see if you can work something out. If you have hospital bills, check and see if your hospital has a “charity care” program or a way of providing free or reduced prices.”
  • TIP  Get a second opinion or an independent evaluation from a trusted source, your own attorney, or a financial adviser. Be cautious of recommendations from the company trying to get your structured settlement.”

Other points that the CFPB make is to encourage structured settlement payees to ask additional questions, including “What’s the cancellation policy?” and “Will there be an impact on public benefits?”  In addition, the CFPB suggests that payees try contacting the lawyer who represented them in the original matter that was resolved via the structured settlement, or visiting a legal aid office or voluntary attorney program web site (here) or a list of lawyer resources from the American Bar Association (here).  Additional help may be available from the National Foundation for Credit Counseling (here).

The CFPB’s warning is available in full here.

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