15 Oct Mixed Reaction to Maryland’s Proposed Reforms in Purchasing of Annuity Settlement Payments
The Standing Committee on Rules of Practice and Procedure, an advisory committee to the Maryland Court of Appeals, approved potential reforms to the industry of selling an annuity settlement last Friday, according to The Washington Post. Coming in almost direct response to another story from earlier this summer in The Washington Post, government officials have been investigating the wide-spread practice of selling things like lottery payments or a structured settlement annuity to third-party companies.
The majority of companies in this space are legitimate, reputable businesses that help people by providing them immediate cash for long-term funds. A necessity for many people that for whatever reason need the money right away. Even “immediate” annuities don’t start paying out for at least 30 days. Then there are pariahs in the industry that tend to prey on the uneducated, disabled, and poverty-stricken population. Instead of giving them fair-market rates for their annuity settlements, they give them essentially pennies on the dollar.
The reason many settlements are usually paid out in this way is in part to protect the person receiving payments from themselves. Evidence shows it’s hard for people to manage coming into a lot of money at once as 70% of all lottery winners lose everything within five years.
In order to better ensure this kind of practice doesn’t happen the committee came up with regulations they want to see put in place before individuals can sell any payments. One of the first major rules would be the requirement that all petitions to engage in such a transaction be filed in the residing jurisdiction of the payees. Also these individuals would now be required to attend the court hearings and in essence convince the judge why it’s in their best interest to sell their annuity settlement.
In addition, the independent professional advisers who counsel prospective sellers on the terms of the deal must also appear in front of the judge. They must also report how often they’ve worked with the same buying company, as it was found many in the industry do.
While the proposed reforms come with good intentions, people on the other side believe not only are they being incorrectly portrayed, but also that these changes could drive expenses up and thus the money recipients receive down in the long run. Most annuities already carry annual fees of 3%; this could potentially decrease their value even more.
“We’re not evil,” said Patricia LaBorde, president of the National Association of Settlement Purchasers. “Some of the rules were drafted without an understanding of how we operate, because there seems to be no understanding of how we operate. I know no one believes that we actually care about our customers, but we actually do. The needs are serious. People don’t come to us for light reasons.”