patrick_farber_predatory_-factoringA recent article in the Washington Post discussed the plight of children poisoned by lead paint found in abundance in the poorer neighborhoods of Baltimore. One of those children was Freddie Gray, the young man who died while in police custody. Children would absorb lead by eating paint chips or breathing paint dust in their homes, which affected their cognitive development.

Thousands of lawsuits were filed on behalf of these children and structured settlements were created so the children would have a secure financial future. Not surprisingly, structured settlement factoring companies saw this as an opportunity to attempt to purchase the structured settlement payments—either from parents or from their children (once they came of age). They would go door-to-door or call payees to convince them to sell. Freddie Gray and his siblings were some of them.

In one example in the article, structured settlement payments worth $573,615 (compounded over 30 years) were sold to the factoring company for only $62,876.

While the State of Maryland has imposed tougher rules in recent years for granting settlement payment purchases (i.e., a judge decides if the sale can go through and an outside attorney must counsel potential sellers), judges continue to rubber stamp these sales (more than 90 percent of the time by some judges).

Is this happening here in California? Fortunately, with input from CAOC, California laws on structured settlement payments were amended in 2010 to become some of the toughest in the nation. The California Structured Settlement Protection Act added layers of safeguards so injured parties could better understand what they’re signing away. Detailed disclosures must be provided to payees that clearly state the terms of the payment purchase. The payee must attend the court hearing deciding on whether the purchase can go through. The payee’s age, mental capacity, legal knowledge and apparent maturity level are determining factors.

Even in California, most structured payment sales are approved by the court. As attorneys for injured clients with structured settlements, it might be helpful to alert these clients that they may be contacted by factoring companies who will try to entice them to sell future payments for instant cash. While financial emergencies can make it necessary to sell all or a portion of the payments, clients must fully understand what they are giving up before agreeing to sell.

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