Minnesota lawmakers vow to fix ‘predatory’ accident settlement practices Accident settlement deals

Minnesota lawmakers vow to fix ‘predatory’ accident settlement practices

Accident settlement deals would face new scrutiny under Minnesota reforms. 

By Jeffrey Meitrodt Star Tribune

 

OCTOBER 9, 2021 — 3:52PM

JEFF WHEELER – STAR TRIBUNE

Tears streamed down Stanley Turner’s face as he learned from court records how much of his payments he has sold. He is one of hundreds of Minnesotans who sold settlement payments to companies at sharp discounts to their long-term value.

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Minnesota lawmakers vowed last week to pass laws to end what they call “predatory” business practices that harm 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 have given up decades of financial security in exchange for upfront cash payments, sometimes for pennies on the dollar.

Many of the deals involved people who suffered traumatic brain injuries and other long-term harm. In Minnesota, one in eight transactions involved a seller with documented mental health problems.

“Unfortunately, there are people who see other people’s misfortune as an opportunity to make a dollar, and the fundamental role of government is to protect people like that,” said state Rep. Zack Stephenson, D-Coon Rapids, chair of the House commerce panel. “Your articles reveal that for this population, we are not doing our job.”

Gov. Tim Walz and other statewide officials also called for reform in 2022.

“The stories behind this investigation are heartbreaking, and any exploitation of Minnesotans’ pain or injury is unacceptable,” Walz said in a statement. “We have a fundamental obligation to protect vulnerable Minnesotans. Our Administration will continue to look at these issues, and I urge the Legislature to pass strong legislation.”

Meanwhile, U.S. Sen. Tina Smith, D-Minn., has called for an investigation of the industry by the Consumer Financial Protection Bureau.

Each year, settlement purchasing companies persuade U.S. accident victims to sell an estimated $1 billion in future payments. On average, the companies keep 60% of the money, according to a Star Tribune analysis of more than 2,400 deals from seven states from 2000 to 2020.

Executives with 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 settlement recipients from unscrupulous operators.

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In many of the largest transactions, accident victims accepted less than 20% of the current value of their money, as calculated by the companies themselves, records show.

Stanley Turner, who received a large settlement as a child after a car accident left him with permanent brain damage, sold more than $500,000 in future payments for $12,001 in 2019. Court records show Turner’s future payments were worth $191,608 at the time of the transaction, which means he received 6.3% of the value.

Some legislators said the state should set a minimum threshold for such deals that would require sellers to receive as close to 100% of the current value as possible.

“As an economist, I definitely think people should, at a minimum, get the present value of their settlement and nothing less,” said Rep. Jennifer Schultz, D-Duluth.

Other lawmakers, however, say the requirements shouldn’t be so strict that they drive companies out of Minnesota. Some accident victims need to sell their future payments if financial trouble strikes, such as if they lose a job, they note.

Insurance experts said another approach is limiting the size of the discount companies apply when determining how much cash people receive for future payments. In North Carolina, for instance, companies can’t go more than 5 percentage points over the prime lending rate, currently 3.25%.

“That’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. “The factoring companies typically charge two to three times that.”

Lawmakers are also disturbed by revelations that people with cognitive challenges have agreed to sell their payments without understanding what they were giving up.

“It is kind of like a double injury,” said Sen. Ron Latz, D-St. Louis Park. “It is adding insult to the injury that led to the settlement in the first place, only in this case it is even more preventable.”

Deals to sell structured settlement payments must be approved by a state court judge, but judges said rules forbid them from investigating the seller’s circumstances.

Latz and other lawmakers said courts should routinely appoint a guardian to investigate proposed deals and offer recommendations, similar to a system in New Mexico.

A trade group that represents companies that buy settlement payments said it “strongly supports” the appointment of guardians by judges. The group also noted its support for rules in some states that ban firms from seeking a friendlier court for their deals — a practice that remains legal in Minnesota.

“We look forward to continuing our work with legislators in Minnesota and throughout the U.S. to weed out bad actors and enact strong consumer protections,” said Brian Dear, executive director of the National Association of Settlement Purchasers.

Judges said their authority needs to be clarified, citing a 2002 state Court of Appeals decision that limits their ability to reject deals for what they see as compelling reasons.

“The law has to change to give judges more discretion in deciding whether these deals are really in someone’s best interests,” said former Ramsey County Judge Margaret Marrinan, who handled two dozen settlement transfer cases before retiring in 2017.

Minnesota’s existing law lacks many of the safeguards featured in other states. Latz, a member of the House Civil Law Committee, said he asked staffers to survey the country and suggest “improvements” to Minnesota’s statute by the end of the year. He expects to have legislation ready for the next legislative session.

“This topic is ripe for bipartisan cooperation,” said Rep. Jim Abeler, R-Anoka, head of the Human Services Reform Finance and Policy Committee. Sen. Andrew Mathews, head of the Senate Civil Law Committee, said he will hold hearings in the next session.

“I was surprised to learn that so many victims of accidents 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’s clear there are problems with the current law.”

the money was supposed to last the rest of Stanley Turner’s life.

He was 5 when a collision hurled him and his sister from the car, leaving both with permanent brain damage.

Doctors said Stanley would never live normally again.

UNSETTLED

Cashing in on accident victims

Explore: The Data

Part 1: The Sellers

Part 2: The Judges

Part 3: The Buyers

Part 4: The Guardians

The insurance company for the driver at fault in the crash settled the Turner family lawsuit by agreeing to a financial package worth more than $4 million to the children. The deal included guaranteed payments that would continue until Stanley turned 60.

He is only 40 now, but the checks have stopped coming. Instead, they’re being cashed by investors who persuaded judges in Minnesota and Florida to let them buy decades of Turner’s future payments.

For his latest sale in 2019 of more than half a million dollars in future payments, Turner received $12,001.

His mother, Barbara Turner, was still despondent a few months after the deal closed. She said her children would have had enough money to live even without working, but now they have almost nothing.

“The wolves have sucked it all out,” she said.

The Turners are among the 750,000 Americans who receive settlement payments, often guaranteed for life, after suffering catastrophic and permanent injuries. The money provides ongoing support to people whose lives have been shattered to the point that they often cannot earn an adequate income or provide for themselves or their families.

But the billions of dollars these victims receive each year also makes them targets for companies that operate in an obscure, largely unregulated niche of the financial services industry.

Each year, settlement purchasing companies persuade accident victims across the country to give up an estimated $1 billion in future payments in return for a much smaller lump sum of cash.

On average, the settlement purchasing companies keep about 60% of the money, according to a Star Tribune analysis of more than 2,400 deals from seven states between 2000 and 2020. In Minnesota alone, these companies have paid $28 million since 2010 for $70 million in future payments, court records show. At the time those deals were struck, the companies valued the payments at $53 million. Typically, payments are worth less the longer someone has to wait for them.

Gina Tedesco spent three years soliciting deals at a leading settlement purchaser. She now owns her own firm in Florida. Photo by Saul Martinez • Special to the Star Tribune

Gina Tedesco, who spent three years soliciting deals at one of the industry leaders, said she believes settlement purchasers prey on people in desperate situations, even though some clients are “not in the right state of mind.”

“It just didn’t sit right,” said Tedesco, who earned $80,000 a year working for other companies before starting her own settlement purchasing firm in 2017. “If you want to last, and survive, you have to not have a conscience.”

The pandemic damaged many sectors of the economy, but companies that buy future payments saw their business surge in Minnesota last year. Altogether, $8.1 million in settlement payments changed hands, close to a state record, documents show. Companies paid a total of $3.3 million for the right to those payments.

Companies signed deals with dozens of people who had never before sold their payments. Nearly a third of the sellers cited lost employment and other financial pressures from COVID-19 as a primary motivation, records show.

Court records show that many settlement recipients in Minnesota struggle with mental health problems or addiction, often as a result of a car crash. Among those who agreed to sell some or all of their settlement payments in Minnesota are 63 people who were ordered to obtain mental health services by a state judge. That list includes 27 people who were involuntarily committed to a mental institution at least once after engaging in bizarre or self-destructive behavior. Dozens of other customers were left cognitively impaired by lead paint poisoning or head injuries.

In some cases, records show, companies were allowed to buy payments just months after a person was released from mental health care facilities. Others were ordered to obtain mental health services shortly after the sale closed.

No state routinely requires the appointment of a guardian to protect the interests of a seller or their children, though judges in West Virginia must consult a guardian if the seller is an “infant, an incompetent person or a ward of the court.”

A sale may mean giving up years, even decades, of financial security — sometimes for pennies on the dollar. Records show that nearly 13% of people who sold their payments in Minnesota later filed for bankruptcy or were evicted from their homes.

Few federal or state laws govern these sales or limit the profits that investors can make. Only seven states, including Minnesota, require sellers to meet with an adviser, but that person is sometimes recommended by the company buying the payments, according to court records and interviews with sellers.

Advisers are not required to rule on the merits of the deal. Some are paid from the proceeds of the sale, which is illegal and has prompted a few judges to reject deals.

No state requires that a seller be represented by an attorney during court proceedings, and most were not in the cases reviewed by the Star Tribune.

New disclosure requirements adopted in 2014 by the Minnesota Legislature appear to be having little impact. Companies that buy the payments are paying, on average, about the same as they were before the rules went into effect, according to documents obtained by the Star Tribune.

County judges must sign off on every deal, but few say no. In the rare instances where Minnesota judges denied a deal, the Star Tribune found dozens of cases where payment buyers filed requests with a new judge, who approved the sale.

In interviews conducted over the past two years, a dozen judges complained about an approval process that seems stacked in favor of the settlement purchasing companies, with key information — such as civil commitment records — usually left out of files.

Some sellers were coached by the companies on how to handle challenging questions from a judge, interviews show. Judges who have denied deals have been removed from subsequent cases at the companies’ request, a maneuver that is legal in Minnesota and requires no supporting evidence.

Judge Kathryn Messerich

“I am horrified,” said Kathryn Messerich, chief judge of Dakota County. “This is one of those things that needs a legislative fix more than anything.”

Richard Cordray, who launched an investigation of the settlement purchasing industry when he was head of the federal Consumer Financial Protection Bureau, said more oversight of payment purchasing firms is needed.

“A lot of tragedies occur when people become aware that other people have access to a substantial pot of money,” Cordray said. “There is always opportunity for predatory conduct, and they need to be policed more closely.”

Richard Cordray

Officials with the National Association of Settlement Purchasers, a trade group that represents some of the biggest buyers in the business, acknowledged that “bad actors” have engaged in questionable conduct. A spokesman said NASP is now trying to persuade lawmakers in all 50 states to adopt new rules that would make it harder to defraud settlement recipients. NASP also revised its code of ethics and standards of conduct after the Star Tribune presented its findings to the group.

“NASP and its members have taken extraordinary steps to protect consumers by implementing strict standards of conduct and leading efforts to enact robust laws in all 50 states and the District of Columbia,” NASP Executive Director Brian Dear said in a written response to questions.

Steve Matiatos of Lino Lakes was 7 when a 1,200-pound concrete sewer culvert rolled over him and partly crushed his skull. He lost most of his teeth and went blind in his right eye. His face was permanently scarred. He never finished high school.

Now 52, Matiatos could be receiving more than $2,000 a month from an out-of-court settlement that guaranteed him an income for life. But in 2000 he started selling his future payments to J.G. Wentworth, which buys more “structured settlements” than anyone else in the United States.

Wentworth went to court six times to buy payments from Matiatos. Twice, it had the judges assigned to his cases removed, court records show.

In one deal, Matiatos agreed to sell $90,000 of monthly payments he was scheduled to collect if he lived to age 59. Wentworth said those payments were worth about $75,000 under federal standards for valuing annuities, records from the 2015 case show. Matiatos received $20,000.

With the loss of sight in his remaining eye and unable to work, Matiatos will not receive another check until he is almost 80 years old. Altogether, Matiatos sold $1.5 million in payments to J.G. Wentworth for $226,500, about 25% of what the company said the payments were actually worth.

Unable to work, Steve Matiatos is supported by his family. He sold $1.5 million in payments for $226,500, about 25% of what the buyer said the payments were worth.

“I kick myself in the ass every day for doing this,” he said. “I’d be living like a king. Instead, I am probably going to be on the streets soon.”

Some sellers said they were incapable of understanding what they were doing at the time they agreed to sell their payments.

Sasha Stromberg spent two weeks in a coma after a car crash in 1984, when she was 6. She dropped out of high school in 10th grade and suffered a nervous breakdown at 27. Court records show she gave up three children for adoption “because of her inability to handle responsibilities.”

Since 2003, judges have allowed Peachtree Settlement Funding to buy $370,202 in payments from Stromberg for $77,202. The payments were valued at around $300,000. Stromberg said her ex-husband convinced her the deals would help them dig out of debt.

“I had no idea what I was doing,” Stromberg said. “It’s like they seen me coming.”

Wentworth, which merged with its biggest rival, Peachtree, in 2011, and other major settlement purchasing companies have declined repeated requests by the Star Tribune since 2019 to provide on-the-record comments about their business practices or specific cases. Wentworth’s chief executive and its top attorney traveled to the Twin Cities in late 2019 to meet with Star Tribune reporters and editors but ultimately declined an on-the-record interview. In a statement, the company said, “We are proud of our 25 year plus history of helping structured settlement holders access funds when they need it in transactions approved by judges.”

The former executive director of NASP said his members provide a valuable service to people whose circumstances or financial goals change. On its website, the group urges people to carefully read the disclosure statement that comes with each deal and reveals how much someone’s payments are currently worth and the amount of money sellers are giving up. Companies are required to provide those disclosures in Minnesota and other states.

“The vast majority of these people are working men and women who have had something go awry in their life, or they have an objective they want to achieve — whether it is buying a house, getting a car or sending a kid to college,” Earl Nesbitt, the trade group’s former leader, said in a 2019 interview. “This is simply an asset they are seeking to liquidate.”

The executive director of a group of large insurance companies and consultants who set up settlement packages said the Star Tribune’s findings about payment purchasers make his “skin crawl.”

“The way they prey on people is unconscionable,” said Eric Vaughn, executive director of the National Structured Settlements Trade Association. “I’m just angry.”

Minnesota lawmakers vow to fix ‘predatory’ accident settlement practices

Accident settlement deals would face new scrutiny under Minnesota reforms. 

By Jeffrey Meitrodt Star Tribune

 

OCTOBER 9, 2021 — 3:52PM

JEFF WHEELER – STAR TRIBUNE

Tears streamed down Stanley Turner’s face as he learned from court records how much of his payments he has sold. He is one of hundreds of Minnesotans who sold settlement payments to companies at sharp discounts to their long-term value.

TEXT SIZE

16

EMAIL

PRINT

MORE

Minnesota lawmakers vowed last week to pass laws to end what they call “predatory” business practices that harm 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 have given up decades of financial security in exchange for upfront cash payments, sometimes for pennies on the dollar.

Many of the deals involved people who suffered traumatic brain injuries and other long-term harm. In Minnesota, one in eight transactions involved a seller with documented mental health problems.

“Unfortunately, there are people who see other people’s misfortune as an opportunity to make a dollar, and the fundamental role of government is to protect people like that,” said state Rep. Zack Stephenson, D-Coon Rapids, chair of the House commerce panel. “Your articles reveal that for this population, we are not doing our job.”

Gov. Tim Walz and other statewide officials also called for reform in 2022.

“The stories behind this investigation are heartbreaking, and any exploitation of Minnesotans’ pain or injury is unacceptable,” Walz said in a statement. “We have a fundamental obligation to protect vulnerable Minnesotans. Our Administration will continue to look at these issues, and I urge the Legislature to pass strong legislation.”

Meanwhile, U.S. Sen. Tina Smith, D-Minn., has called for an investigation of the industry by the Consumer Financial Protection Bureau.

Each year, settlement purchasing companies persuade U.S. accident victims to sell an estimated $1 billion in future payments. On average, the companies keep 60% of the money, according to a Star Tribune analysis of more than 2,400 deals from seven states from 2000 to 2020.

Executives with 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 settlement recipients from unscrupulous operators.

ADVERTISEMENT

In many of the largest transactions, accident victims accepted less than 20% of the current value of their money, as calculated by the companies themselves, records show.

Stanley Turner, who received a large settlement as a child after a car accident left him with permanent brain damage, sold more than $500,000 in future payments for $12,001 in 2019. Court records show Turner’s future payments were worth $191,608 at the time of the transaction, which means he received 6.3% of the value.

Some legislators said the state should set a minimum threshold for such deals that would require sellers to receive as close to 100% of the current value as possible.

“As an economist, I definitely think people should, at a minimum, get the present value of their settlement and nothing less,” said Rep. Jennifer Schultz, D-Duluth.

Other lawmakers, however, say the requirements shouldn’t be so strict that they drive companies out of Minnesota. Some accident victims need to sell their future payments if financial trouble strikes, such as if they lose a job, they note.

Insurance experts said another approach is limiting the size of the discount companies apply when determining how much cash people receive for future payments. In North Carolina, for instance, companies can’t go more than 5 percentage points over the prime lending rate, currently 3.25%.

“That’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. “The factoring companies typically charge two to three times that.”

Lawmakers are also disturbed by revelations that people with cognitive challenges have agreed to sell their payments without understanding what they were giving up.

“It is kind of like a double injury,” said Sen. Ron Latz, D-St. Louis Park. “It is adding insult to the injury that led to the settlement in the first place, only in this case it is even more preventable.”

Deals to sell structured settlement payments must be approved by a state court judge, but judges said rules forbid them from investigating the seller’s circumstances.

Latz and other lawmakers said courts should routinely appoint a guardian to investigate proposed deals and offer recommendations, similar to a system in New Mexico.

A trade group that represents companies that buy settlement payments said it “strongly supports” the appointment of guardians by judges. The group also noted its support for rules in some states that ban firms from seeking a friendlier court for their deals — a practice that remains legal in Minnesota.

“We look forward to continuing our work with legislators in Minnesota and throughout the U.S. to weed out bad actors and enact strong consumer protections,” said Brian Dear, executive director of the National Association of Settlement Purchasers.

Judges said their authority needs to be clarified, citing a 2002 state Court of Appeals decision that limits their ability to reject deals for what they see as compelling reasons.

“The law has to change to give judges more discretion in deciding whether these deals are really in someone’s best interests,” said former Ramsey County Judge Margaret Marrinan, who handled two dozen settlement transfer cases before retiring in 2017.

Minnesota’s existing law lacks many of the safeguards featured in other states. Latz, a member of the House Civil Law Committee, said he asked staffers to survey the country and suggest “improvements” to Minnesota’s statute by the end of the year. He expects to have legislation ready for the next legislative session.

“This topic is ripe for bipartisan cooperation,” said Rep. Jim Abeler, R-Anoka, head of the Human Services Reform Finance and Policy Committee. Sen. Andrew Mathews, head of the Senate Civil Law Committee, said he will hold hearings in the next session.

“I was surprised to learn that so many victims of accidents 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’s clear there are problems with the current law.”

Jeffrey Meitrodt • 612-673-4132