The Settlement Alliance

CFPB Releases Warning on Factoring Transactions

CFPB Releases Warning on Factoring Transactions

Apr 10, 2017

On April 9, 2017, the Consumer Financial Protection Bureau (CFPB) released a letter warning consumers about the dangers of factoring transactions. The warning, in part, states:

You could receive much less cash than your settlement is worth. Dealing with companies that offer lump sum payments for your disability, personal injury or structured settlement payments can be very risky. Some companies target people with disabilities who have structured settlements. If you receive a flyer or solicitation promising fast cash or a lump sum payment for your monthly payments, be aware! Consider all options, including talking to people you trust with your finances, or your own lawyer or financial counselor, before trading your future payments for instant cash.

The CFPB’s warning signifies an important step in protecting individuals who have already suffered through personal injury events. For years, factoring companies have been preying on these individuals by exploiting their financial needs and their lack of understanding about the factoring process and its alternatives.

What is Factoring?

Factoring companies target individuals with structured settlements, enticing them with promises of “help” to get cash now to meet their needs. A factoring company purchases a structured settlement annuity from an injured individual in exchange for a cash payment. The cash payment represents a significantly discounted sum, leaving the injured individual with pennies on the dollar.

The factoring industry has been under close scrutiny in recent years, with the CFPB filing a complaint against Access Funding, LLC (and its successor, Reliance Funding) back in November 2016. The complaint was issued in response to Access Funding’s business practices with consumers who had received settlements from lead poisoning cases, many who suffered from cognitive impairments. Specific practices named in the complaint included steering consumers to a “sham advisor” and exploiting consumers’ confusion by offering cash advances to those awaiting approval of their structured settlement transfers—and then leading them to falsely believe that the cash advances bound them to the factoring transaction.

How Can You Protect Your Clients?

While the CFPB’s warning is certainly valuable, it does not address the issue of claimants ending up with structured settlements that don’t work for them. Structured settlements can be excellent tools for meeting the financial needs of a personal injury claimant, but—and this is important—the plan has to work for the injured claimant. An experienced settlement planner will take a comprehensive look at the claimant’s medical and financial needs, both for the present and anticipated future needs. By creating a plan for the settlement up front, the claimant can help alleviate the need to cash in on the structured settlement down the line.

For More Information

To learn more about structured settlements, contact The Settlement Alliance today at 800-464-2500 or info@settlement-alliance.com. To read the contents of the CFPB’s warning, click here.

Categories: Recent Legal Rulings

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • Liberty Life Assurance Company of Boston
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential