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.

Another day, another question of abusive cash now transactions. Another lead paint victim, too. See here for more details. It all begs the question: why do the big cash now companies prey on the head injured? Is it a delicacy? Or are they just hoping no one will notice? Ladies and gentlemen, this is why we harp on brokers needing to educate their annuitants on how factoring is useful in some situations, and completely inappropriate in others. It’s why brokers are the referral gatekeepers, or at least, they should be. Anyone with a severe personal injury, especially one affecting their judgment, requires greater aid in both pre and post structure environments. Even if a factoring transaction might have addressed the legitimate needs of the man in the article, was factoring the whole thing really necessary? Probably not. It’s why consultation is required, not just telemarketing. As for the court and its involvement in the issue of whether insurers have a duty to question factoring transactions, full stop. Requiring insurers to question factoring transactions would increase their liability, as well as the fact that while courts must apply the best interest standard, an ethical factoring company uses the annuitant’s best interest as its guiding light. Furthermore, it is the duty of the court to determine whether a factoring transaction is in the best interest of the seller and serves as final gatekeeper. That’s the whole purpose of going to court in the first place. If not the courts, then the legislatures in whatever state is affected by abusive or exploitative practices. We’ve seen this throughout the country in the past few years, such as in Louisiana, Georgia, and Minnesota. It’s cumbersome to add additional requirements upon the companies involved in a potential transaction when the issue isn’t whether the company’s sought to conduct business as usual, but whether the court authorized it in the circumstances they are meant to scrutinize. Factoring transactions can and should be done according to set rules. No forum shopping, no poaching, no scraping, no “gotcha!” checks, no flagrant flouting of the TCPA and other applicable state consumer protection laws. There’s a right way and a wrong way. Promote the right way. Educate. Consult. Refer. We’ll be here.

We're thrilled to see that others are contributing to the factoring expose by the Minnesota Star Tribune . This time, structured settlement consultant Dan Finn. You can read his take on factoring and the Star article here . What's more, you can see Cam Mears delve into the details on factoring in his one-on-one interview with Finn here on YouTube! Factoring doesn't have to be the boogeyman. Make sure it's done right by referring only to those you trust to offer proper consultation.