Minnesota lawmakers last week vowed to pass laws to end what they call “predatory” business practices that hurt accident victims who sell parts of their court settlements at steep discounts.
The push to rewrite the rules governing these deals was sparked by a Star Tribune investigation that showed how hundreds of Minnesotans gave up decades of financial security in exchange for upfront cash payments, sometimes for pennies on the dollar.
Many of the transactions involved people who suffered traumatic brain injuries and other long-term damage. In Minnesota, one in eight transactions involved a salesperson with documented mental health issues.
“Unfortunately, there are people who see other people’s misfortune as an opportunity to earn a dollar, and the fundamental role of government is to protect people like that,” said State Representative Zack Stephenson, D- Coon Rapids, President of House Commerce. panel. “Your articles reveal that for this population, we are not doing our job.”
Governor Tim Walz and other state officials have also called for reform in 2022.
“The stories behind this investigation are heartbreaking and any exploitation of the pain or injuries of the Minnesotans is unacceptable,” Walz said in a statement. “We have a fundamental obligation to protect vulnerable Minnesotans. Our administration will continue to address these issues, and I urge the legislature to pass strong legislation.”
Meanwhile, US Senator Tina Smith, D-Minn., Has called for an investigation of the industry by the Consumer Financial Protection Bureau.
Every year, settlement buying companies persuade American accident victims to sell roughly $ 1 billion in future payments. On average, companies keep 60% of the money, according to a Star Tribune analysis of more than 2,400 transactions in seven states from 2000 to 2020.
Executives of companies that buy settlement payments argue that Americans should be free to make their own financial decisions. They also say judges have all the power they need to protect beneficiaries of settlements from unscrupulous operators.
In many of the larger transactions, accident victims accepted less than 20% of the present value of their money, as calculated by the companies themselves, according to records.
Stanley Turner, who received a major settlement as a child after a car accident left him with permanent brain damage, has sold over $ 500,000 in future payments for $ 12,001 in 2019. Court records show that Turner’s future payments were worth $ 191,608 at the time of the transaction, meaning he received 6.3% of the value.
Some lawmakers have said the state should set a minimum threshold for such transactions that would require sellers to receive as close to 100% of current value as possible.
“As an economist, I really think people should, at a minimum, get the current value of their settlement and nothing less,” said Rep. Jennifer Schultz, D-Duluth.
Other lawmakers, however, say the requirements shouldn’t be so stringent that they drive businesses out of Minnesota. Some accident victims have to sell their future payments if financial problems arise, such as if they lose their jobs, they note.
Insurance experts have said that another approach is to limit the size of the discount companies that apply to determine the amount of money people will receive for future payments. In North Carolina, for example, companies cannot exceed the prime rate, currently 3.25%, by more than 5 percentage points.
“It’s a good strategy,” said Eric Vaughn, executive director of the National Structured Settlements Trade Association, which represents large insurance companies and consultants who set up settlement packages. “Factoring companies typically charge two to three times as much.”
Lawmakers are also troubled by revelations that people with cognitive challenges have agreed to sell their payments without understanding what they were giving up.
“It’s kind of like a double injury,” said Sen. Ron Latz, D-St. Louis Park. “It adds an insult to the injury that led to the settlement in the first place, only in this case it’s even more preventable.”
Structured settlement payment sales agreements must be approved by a state court judge, but judges said the rules prohibited them from investigating the seller’s circumstances.
Latz and other lawmakers have said courts should systematically appoint a guardian to investigate proposed deals and make recommendations, much like a system in New Mexico.
A trade group that represents companies that buy settlement payments has said it “strongly supports” the appointment of guardians by judges. The group also noted its support for some state rules prohibiting companies from seeking a more user-friendly court for their transactions – a practice that remains legal in Minnesota.
“We look forward to continuing our work with lawmakers in Minnesota and across the United States to weed out bad actors and put in place strong consumer protections,” said Brian Dear, Executive Director of the National Association of Settlement Purchasers. .
The judges said their authority needed to be clarified, citing a 2002 state appeals court ruling that limits their ability to dismiss deals for what they see as compelling reasons.
“The law needs to change to give judges more leeway to decide whether these deals are really in someone’s best interests,” said former Ramsey County Judge Margaret Marrinan, who has handled two dozen cases settlement transfer before retiring in 2017.
Current Minnesota law lacks many of the safeguards found in other states. Latz, a member of the House civil law committee, said he had asked staff members to investigate the country and suggest “improvements” to Minnesota law by the end of the year . He expects the legislation to be ready for the next legislative session.
“This subject is ripe for bipartisan cooperation,” said Representative Jim Abeler, R-Anoka, head of the Finance and Policy Committee for Social Services Reform. Senator Andrew Mathews, head of the Senate Civil Law Committee, said he would hold hearings in the next session.
“I was surprised to learn that so many accident victims are essentially revictimized when they sell their settlement for pennies on the dollar, and what techniques these payment companies have used,” said Mathews, R-Princeton. “It is clear that there are problems with the current law.”
Jeffrey Meitrodt • 612-673-4132