A New York trial judge recently urged the state legislature to introduce an amendment to the state’s Structured Settlement Protection Act that would set a cap on the discount rate factoring companies could use when transferring payments from structured settlement annuity recipients. I believe California legislators should take notice and follow suit.

The New York case, In The Matter Of The Petition Of J.G. Wentworth Originations, LLC and Allia Rahman, No. 216362011 (N.Y. Sup. Ct. Dec. 14, 2011), involved factoring company J.G. Wentworth and its attempt to transfer payments due to be paid to Allia Rahman. J.G. Wentworth was proposing an annual discount rate of 17.78 percent as part of the transaction. The aggregate amount of the transferred payments came to $89,237.77. Using the annual discount rate of 17.78 percent, Rahman would have received only $12,500, about 20 percent of what she would have received if she did not transfer the annuity payments to the factoring company.

Justice David J. Elliot ruled that J.G. Wentworth failed to demonstrate that the transfer was in Rahman’s best interest or that the transfer was fair and reasonable, in part, because of the high discount rate. He pointed to the New York lottery’s 10 percent transfer law as a possible guideline for structured settlement discount rates.

Currently, the California State Structured Settlement Protection Act does not set a cap on discount rates. While California judges have the discretion to deny a transfer if they deem it not in the best interest of the injured party, having a cap could help ensure the payee receives a larger percentage of the settlement proceeds.

Thank you Peter Vodola, partner with Seiger Gfeller Laurie LLP in West Hartford, Connecticut, for bringing this case and issue to my attention. For more analysis, go to Pete’s blog.

For a copy of the opinion: Click Here.

Feel free to email me with any structured settlement questions at pat@patrickfarber.com or call 800-734-3910.