by Structured Settlement Watchdog
This week "The Settlement Channel" seems more like "The Factoring Channel"
Mark Wahlstrom, a friend and fellow blogger, appeared far from impartial during his interview with Matt Bracy, General Counsel of Settlement Capital Corporation in Dallas, TX. Interestingly, I had a telephone earlier this week with Kirk Hughes of Settlement Capital, during which "The Factoring Channel" was mentioned as a potential topic. As is common much of today's media, it seems Settlement Capital opted to "stir controversy" in pursuit of higher ratings. so, the saga unfolds.
There is a certain faction in the settlement planning industry that wants to promote factoring for an apparent profit motive because there's alot of money to be made in it
People are entitled to earn a living, but at what cost, and to whom? It is comparable to an insurance agent selling whole life insurance in circumstances where the client would be better served with a term policy. The agent might argue that the client has a long-term need and could always convert the whole life policy into a term policy later, even it takes a couple of years. Meanwhile, the agent retains their 55%-100% commission if the client cashes out during that period, resulting in financial loss for the client.
Wahlstrom minimizes the Internet smog caused by certain factoring companies misuse of key words and then on podcast 4 he talks about the importance of the Internet. Which is it?
Having observed the use of the Internet by factoring companies over the past 24 months it's obvious that the Internet is clearly a very important strategy for factoring companies.Why else would a factoring company be willing to spend up to $100 each time someone clicks on their ad? If 1,000 people click on the ad per month that's $100,000 per month per key word or phrase. Internet strategy should also be important for licensed structured settlement brokers. While its true that one should strive to be the primary education resource your clients, the fact is that Internet penetration in US households is already significant and it continues to grow at blinding speed. Having a head in the sand just demonstrates a lack of awareness.
While one can certainly derive a certain amount of comfort knowing that judicial review and approval is required to consummate a structured settlement factoring transaction, can a Court be found liable if the transaction is later found to not be in the individual's best interest? I don't think so. One certainly hopes for the sake of structured settlement annuitants that the Court seeks independent expertise beyond the paperwork supplied by the factoring company.
Bracy states in podcast 4 that his company charges discount rates of between 9% and 18%. He also states that his company generally covers other costs and that costs if incurred are fully disclosed. My prior post entitled What's Your Effective Discount Rate? highlights a JG Wentworth disclosure in the State of New York.
Note the difference between the quoted "discount rate" and the "effective discount rate" (includes charges and fees) required under the State of New York General Obligations Law and what that actually means.
I appreciate that Bracy mentions in the podcast that his company proactively asks potential sellers about their financial needs. However, there was no discussion exploring alternative sources for raising the required funds as part of the process, even if the company does not benefit from such efforts. For instance, Bracy's company does not profit when an annuitant opts for a home equity loan or a zero-interest credit loan.
As an aside, Bracy's company is due some praise for the editing its website to clearly state that it is in the factoring business and not in the business of creating structured settlements. If more factoring companies would take a similar initiative then perhaps a joint task force with the structured settlement industry could be marshalled for a project to attack the splog cancer problem.
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