Annuitants & Factoring Questions: How to Tell They're Coming
April 12, 2021
Since the Society of Settlement Planners (SSP) Annual meeting, we’ve had some inquiries into how to help annuitants avoid getting taken advantage of by the “Cash Now!” factoring companies. First, we need to establish the reality we’re all dealing with here:
- Annuitants are exposed to the existence of factoring through TV, radio, and Internet ads, as well as direct solicitation. The allure of “Cash now!” is misleading but promises to solve people’s financial problems. A transaction will happen.
- The Cash Now companies do not offer informed consultation or have any concern for the annuitant’s situation. Their business is simply to buy as many annuity payments as they can, using whatever means possible to get that business, no matter how misleading or ethically questionable.
- As part of a factoring transaction, annuitants must provide copies of their structured settlement documents. This is where you come in.
HOW YOU CAN HELP
It’s a red flag when an annuitant asks for their structure documents out of the blue. If they’re asking, it’s most likely because they need them for a factoring transaction with a Cash Now company they saw on TV. This is the best time to keep an annuitant from being victimized. How?
- Ask what they need the docs for; Is everything okay? Anything you can do to help them? Is this for a factoring company? Context matters.
- If you have a factoring consultant you trust, suggest they call that person to ensure they are considering everything before moving forward. The Cash Now companies urge annuitants to cash out everything, either the first time or through harassing them into subsequent transactions. A proper consultation will help annuitants address their immediate situation and keep needed future payments intact. It also clears up any ad-based misconceptions, like whether they actually get cash now (they don’t), or whether there’s a formal process to go through (there is).
- Let them know, as the structure expert, you are recommending a trusted factoring expert. Your referral means a lot to an annuitant in need.
- Do not try to talk an annuitant out of a factoring transaction. They’ve already made their decision. It’s more compelling for a trusted factoring consultant to go through their situation in detail and let them know when factoring doesn’t make sense.
- Ensure that everyone on your team, from support staff to case managers, know what to look for and how to address it. Have a trusted referral standing by.
Last, and this is vital for annuitants to understand: the availability of factoring is an added value to their structure. However, it should only be done when it makes sense and is truly needed. Factoring shouldn’t be done just because the option exists, and especially not due to the sales pressure of a Cash Now company or the siren-song of an immediate payday. Together, we can make sure annuitants are properly taken care of and do not become victims of sleazy telemarketing, catchy jingles, Words with Friends ads, or their own desperation for cash now.
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It’s a time to be thankful! We’d like to show our appreciation for everyone out there who, like us, is focused on crafting the best solution to our clients’ needs. Moreover, the season demands we take the time to acknowledge a few things. First, and the hard work NSSTA has done to ensure greater fairness in the factoring process. Work in Georgia and Florida to ensure aggressive poaching has been nullified is commendable and should be the standard everywhere. Likewise, a tip of the hat to Texas, whose personal identifying information (PII) protections guarantees that annuitants don’t get harassed ad nauseum from the moment the ink dries on their structured settlement agreements or when they’ve made the decision to cash something out. We’d also like to thank the work of those who go unrecognized too often: the IPAs who help both us and the courts with guaranteeing that our more vulnerable annuitants get the proper added input and security. It’s not required in all states, but we’re sure to use them as often as we can. The best consultation doesn’t just come from us, and we know plenty of clients need that added layer of protection to feel comfortable. Where some may try to lead annuitants away, knowing full well that the deal is a result of their aggressive telemarketing or clever jingles, we know we can trust you and your referrals. They wouldn’t be doing this unless they needed to. Finally, we give thanks to you. Enjoy the turkey, good company, and inevitable food coma.
“Happy Halloween!”
Factoring isn’t the boogeyman and structures are not perfect.
The best structured settlements are beautiful, but don’t get attached to them. Life happens, and as such it’s life, not factoring, that is the enemy of a structured settlement. The best laid plans, like the best policies, with the best intentions, can’t s
Myth: You will lose money by factoring, so take out a loan instead. Reality: Whether you factor annuity payments or take a loan, there is a cost to obtaining money, but many people believe that factoring involves “losing” money. This misconception comes from comparing the cumulative future payments with the present value lump sum payment offered by the factoring company. For instance, if an annuitant has 200 monthly payments of $1,000 , the cumulative payments would be $200,000 . In this case, a factoring transaction might net the annuitant approximately $100,000 or 50% of the cumulative total. This is not “losing” money, it is the result of obtaining future payments early at a 10% discount rate. If instead the annuitant took a $100,000 loan at 10% and paid it back over 200 months , the total cost including interest would also be $200,000 (assuming the annuitant had sufficient credit to get the loan). A loan requires credit, collateral, origination fees, and carries the risk of late fees and foreclosure if payments are not made when due. In the factoring scenario, the annuitant would need to wait 200 months (almost 17 years) to collect the full $200,000 , during which time the equivalent present value of the payments is continually diminishing due to inflation. A dollar will not have the same purchasing power in 17 years as it has today.
