Is It Really a Loan?
August 27, 2014

Considering the entire buzz around a new bank-funded structured settlement loan and all the subsequent questions I have gotten about it, I thought it appropriate to give this product an initial review even though I don’t yet have an actual contract to examine.  So far, what stood out to me most in the bank’s promotional material was the great lengths they went to differentiate themselves from conventional factoring companies.  They really go all out in selling their product as a bank loan and not a factoring transaction, making it appear that getting liquidity out of a structured settlement is as simple as applying for a car loan.  They even suggest that you promote this product to your attorney clients as the solution to their concerns about factoring. So is this product as innovative and revolutionary as they claim or mostly semantics and marketing spin?  To start, I have a hard time believing that this loan process is as simple and straightforward as they suggest.   Foremost is the fact that a structured settlement annuity cannot be used as collateral for a loan.  That begs the question as to whether a five-star rated bank would provide large, unsecured loans to annuitants?   That’s highly unlikely, especially in light of the fact that most annuitants come to us with significant debts and less-than-stellar credit.  These two statements in their advertisement reveal the bigger picture to me:

  • “Costs to your client include: Bank costs for establishing the loan including attorney fees and court costs.”
  • “Loan payments made directly by the insurance carrier so your client doesn’t have to worry about making the payments”

Based on my knowledge of factoring, I immediately thought: if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.  Here’s why:

  1. They are charging the client for attorney’s fees and court costs.  Why is this required for a simple loan?   These are costs associated with every factoring transaction.
  2. The only way an insurance company will redirect payments to another payee (the bank in this case) is with a court order, just like that required for all factoring transactions.
  3. To recover principal and interest for the term of the loan, the bank then collects the monthly factored payments from the insurer directly and not from the annuitant, just like a factoring transaction.

This leads me to believe that what they’re actually doing is factoring the annuitant’s payments as both collateral and payment for a so-called loan.  How is that a radical departure from the status quo?  To me, it all sounds like just another duck… perhaps a slightly different species of duck, but still a duck nonetheless.

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