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Congress Considers Crackdown on Lawsuit Settlement Buyouts

Updated on September 4, 2015

More Regulation Coming for Structured Settlements

Congress and the Maryland Legislature are considering legislation to clamp down on companies that purchase settlement payment rights from claimants who win lawsuits.

The companies sometimes are criticized for profiting off the need of low income and disabled persons for quick financing.

A Washington Post article said the companies pay the claimants only a small part of the money they could receive from the lawsuits. Often, the claimants are victims of lead poisoning who suffer brain injury.

The buyouts are directed at structured settlements, which refer to payments made in installments over many years. They are supposed to protect vulnerable claimants who otherwise would be likely to spend all of their money unwisely for what they believe is an immediate need.

Structured settlements are different from traditional settlements, which are paid out in a lump sum.

Maryland and other states have tried to prevent predatory buyouts of structured settlements with laws that require a local judge’s approval before the payment rights can be sold. In Maryland, the law is called the Settlement Protection Act.

The laws commonly are designed for victims of lead poisoning, many of whom ingested paint or other lead-bearing products that were used to build houses until the mid-1900s. The victims often suffer cognitive problems that can impair their judgment.

The Washington Post story said the Settlement Protection Act has failed to halt manipulation of the people it was designed to protect. One of them sold $338,000 of payments for $63,000.

Another was a young woman who suffered mild mental retardation. She sold all of her payments due through 2030 and is now homeless.

Companies that purchase the structured settlements say they often help their customers by getting them money quickly that has saved their homes or paid for college educations.

Maryland Delegate Samuel Rosenberg (D-Baltimore) said he plans to introduce legislation soon that would more closely regulate the purchasing companies. His promise of action was followed by members of Congress who said they would investigate the buyouts.

Structured Settlement Buyouts Accused of Being Manipulative

Companies that purchased structured settlements are being accused of taking advantage of poor people.
Companies that purchased structured settlements are being accused of taking advantage of poor people.

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    • Tom Ramstack profile image
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      Tom Ramstack 23 months ago from Washington, D.C.

      That's exactly what the people in Congress and the Maryland Legislature are saying. The reason some poor people was manipulated is because nobody realized the extent of what was happening behind the scenes. I'm sure any new legislation will include vastly expanded disclosure requirements.

    • MarleneB profile image

      Marlene Bertrand 23 months ago from Northern California, USA

      I have seen these advertisements and thought it was a great way for people to receive funds up front instead of waiting. Now, after reading your commentary, I am not so sure it is a wise thing. I had no idea people were being taken advantage of to such a serious degree. You have made me more aware. More people should know about this.