If you look past all the marketing hype, I believe that you will also see that this new structured settlement loan product appears to be little more than a modified factoring transaction. I suspect that the main feature that differentiates this so-called loan from the status quo is some provision in the transfer agreement that allows the annuitant to repay the bank prior to maturity, restoring the remaining portion of the factored structured settlement used as collateral and payment for the loan. An early repayment option sounds compelling and revolutionary; however, experience tells me it’s all just window dressing, whereby, the reality is that very few to none will exercise this option. I say this because in my twelve years as a factoring broker, I have worked with hundreds of annuitants and not done a single transaction with one annuitant that I believe would have had the will, resources or ability to repay one of these loans.
Another concern is that they glossed over the fact that this transaction will probably be an expensive and time consuming undertaking, even if it can technically be called a loan. Legal fees, insurer transfer fees, and court costs add up to thousands, not to mention any additional bank origination fees. That’s why I always counsel credit worthy annuitants with more liquid collateral to first look to conventional funding sources for short term loans due to the transaction cost savings. That leaves those with few other means to consider these new factoring-backed loans as a viable liquidity option. The irony is that these same annuitants likely have little ability to repay any loans taken out on their structured settlements. It follows that all these loans become nothing more than standard factoring transactions if nobody exercises the early payment option and the factored annuity covers the loan obligations until maturity.
The reality is that there is no real disadvantage to a traditional factoring transaction when done correctly by an experienced and reputable firm. The vast majority of our clients are just trying to keep their heads above water and I just can’t see any being interested in more loan debt. Our policy is to work with annuitants to gain just enough liquidity from their structured settlements to pay their obligations and move forward, not lending them money that they likely can’t repay.