In soliciting plaintiff lawyers, structured settlement brokers and settlement planners often cite a legal case which raised issues about disclosure and privity as a reason for plaintiff lawyers to have the counsel of their own broker. In Lyons v MMIA (730 N.Y.S.2d 345), the structured settlement broker for former medical malpractice insurer MMIA was complicit in the manipulation of the discount rate the discount rate to pump up the present value of the case.
Fast forward to 2007 and the issue of factoring discount rates and referral fees/commissions brings a new issue that could hoist some of the same people by their own petard. Due to the way the Florida Factoring disclosure is written, is it possible for the factoring company (ergo the structured settlement factoring vig taker) to avoid making a disclosure of brokerage commissions and "other commissions" or fees that are buried in the discount spread? The Florida disclosure appears to require an itemization of these deductions AFTER the present value has been determined.
Upon information and belief the majority of structured settlement brokers and settlement planners who refer business to factoring companies AND take a fee or commission for doing so are NOT disclosing such fees or commissions, the ability to negotiate them and/or their impact on the tort victim’s bottom line.
Florida Statute 626.99296 (2)(b)(3) (f) definition of discount finance charge
Discount and finance charge" means the sum of all charges that are payable directly or indirectly from assigned structured settlement payments and imposed directly or indirectly by the transferee and that are incident to a transfer of structured settlement payment rights, including:
1. Interest charges, discounts, or other compensation for the time value of money;
2. All application, origination, processing, underwriting, closing, filing, and notary fees and all similar charges, however denominated; and
3. All charges for commissions or brokerage, regardless of the identity of the party to whom such charges are paid or payable.
The term does not include any fee or other obligation incurred by a payee in obtaining independent professional advice concerning a transfer of structured settlement payment rights.
Florida Statute 626.99296 (2)(b)(3) (h) definition of "Independent professional advice" means advice of an attorney, certified public accountant, actuary, or other licensed professional adviser:
1. Who is engaged by a payee to render advice concerning the legal, tax, and financial implications of a transfer of structured settlement payment rights;
2. Who is not in any manner affiliated with or compensated by the transferee of the transfer; and
3. Whose compensation for providing the advice is not affected by whether a transfer occurs or does not occur.
THIS IS A CRITICAL DEFINITION. IF THE STRUCTURED SETTLEMENT BROKER OR SETTLEMENT PLANNER IS BEING COMPENSATED BY A FACTORING COMPANY THEN IT IS NOT "INDEPENDENT FINANCIAL ADVICE", AS THAT TERM IS DEFINED IN THE FLORIDA STATUTE, AND THEREFORE MUST BE ITEMIZED.
Florida Statute 626.99296 (6) appears to provide for stiff penalities for non compliance with the statute.
NONCOMPLIANCE.–
(a) If a transferee violates the requirements for stipulating the discount and finance charge provided for in subsection (3), neither the transferee nor any assignee may collect from the transferred payments, or from the payee, any amount in excess of the net advance amount, and the payee may recover from the transferee or any assignee:
1. A refund of any excess amounts previously received by the transferee or any assignee;
2. A penalty in an amount determined by the court, but not in excess of three times the aggregate amount of the discount and finance charge; and
3. Reasonable costs and attorney’s fees.
(b) If the transferee violates the disclosure requirements in subsection (3), the transferee and any assignee are liable to the payee for:
1. A penalty in an amount determined by the court, but not in excess of three times the amount of the discount and finance charge; and
2. Reasonable costs and attorney’s fees.
(c) A transferee or assignee is not liable for any penalty in any action brought under this section if the transferee or assignee establishes by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error, notwithstanding the transferee’s maintenance of procedures reasonably designed to avoid such errors.
(d) Notwithstanding any other law, an action may not be brought under this section more than 1 year after the due date of:
1. The last transferred structured settlement payment, in the case of a violation of the requirements for stipulating the discount and finance charge provided for in subsection (3).
2. The first transferred structured settlement payment, in the case of a violation of the disclosure requirements of subsection (3).
(e) When any interested party has reason to believe that any transferee has violated this section, any interested party may bring a civil action for injunctive relief, penalties, and any other relief that is appropriate to secure compliance with this section.
Florida Factoring disclosure Download chambers_fla_disclosure.pdf
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