by John Darer® CLU ChFC MSSC CeFT RSP CLTC
Dallas lawyer Matt Bracy did a nice job of explaining the structured settlement factoring process (which is entirely different from how structured settlements work) in a post on the Settlement Capital blog. Kudos again to Matt who is one of the few factoring company representatives that stands up and is not afraid to state what is that they actually do.
The one essential point that I think Matt didn't adequately cover is the discount rate. There is a big difference between the discount rate and the "effective discount rate".
In a structured settlement factoring transaction, the effective discount rate is the rate a seller of structured settlement payment rights is effectively "paying" to the buyer in exchange for "cash now" AFTER taking into account all charges. In the context of a structured settlement factoring transaction, consumers need to beware of looking simply at the quoted discount rate, which is often quoted before charges. If you find yourself considering selling your payment rights, use the effective discount rate to evaluate the wisdom of selling your payment rights. You can use the effective discount rate to compare to other sources of capital.
http://structuredsettlements.typepad.com/structured_settlements_4r/files/20070509161857_001.001.pdf
The above link is from from an earlier post reporting a March 2007 attempt by Massachusetts Academy of Trial Attorneys "Affinity Partner", Peachtree Settlement Funding to get away with a 41.73% effective discount rate
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