Minnesota lawmakers vowed last week to pass laws to end what they call "predatory" business practices that harm accident victims who sell parts of their court settlements at steep discounts.
The push to rewrite the rules governing these deals was sparked by a Star Tribune investigation that showed how hundreds of Minnesotans have given up decades of financial security in exchange for upfront cash payments, sometimes for pennies on the dollar.
Many of the deals involved people who suffered traumatic brain injuries and other long-term harm. In Minnesota, one in eight transactions involved a seller with documented mental health problems.
"Unfortunately, there are people who see other people's misfortune as an opportunity to make a dollar, and the fundamental role of government is to protect people like that," said state Rep. Zack Stephenson, D-Coon Rapids, chair of the House commerce panel. "Your articles reveal that for this population, we are not doing our job."
Gov. Tim Walz and other statewide officials also called for reform in 2022.
"The stories behind this investigation are heartbreaking, and any exploitation of Minnesotans' pain or injury is unacceptable," Walz said in a statement. "We have a fundamental obligation to protect vulnerable Minnesotans. Our Administration will continue to look at these issues, and I urge the Legislature to pass strong legislation."
Meanwhile, U.S. Sen. Tina Smith, D-Minn., has called for an investigation of the industry by the Consumer Financial Protection Bureau.
Each year, settlement purchasing companies persuade U.S. accident victims to sell an estimated $1 billion in future payments. On average, the companies keep 60% of the money, according to a Star Tribune analysis of more than 2,400 deals from seven states from 2000 to 2020.
Executives with companies that buy settlement payments argue that Americans should be free to make their own financial decisions. They also say judges have all the power they need to protect settlement recipients from unscrupulous operators.
In many of the largest transactions, accident victims accepted less than 20% of the current value of their money, as calculated by the companies themselves, records show.
Stanley Turner, who received a large settlement as a child after a car accident left him with permanent brain damage, sold more than $500,000 in future payments for $12,001 in 2019. Court records show Turner's future payments were worth $191,608 at the time of the transaction, which means he received 6.3% of the value.
Some legislators said the state should set a minimum threshold for such deals that would require sellers to receive as close to 100% of the current value as possible.
"As an economist, I definitely think people should, at a minimum, get the present value of their settlement and nothing less," said Rep. Jennifer Schultz, D-Duluth.
Other lawmakers, however, say the requirements shouldn't be so strict that they drive companies out of Minnesota. Some accident victims need to sell their future payments if financial trouble strikes, such as if they lose a job, they note.
Insurance experts said another approach is limiting the size of the discount companies apply when determining how much cash people receive for future payments. In North Carolina, for instance, companies can't go more than 5 percentage points over the prime lending rate, currently 3.25%.
"That's a good strategy," said Eric Vaughn, executive director of the National Structured Settlements Trade Association, which represents large insurance companies and consultants who set up settlement packages. "The factoring companies typically charge two to three times that."
Lawmakers are also disturbed by revelations that people with cognitive challenges have agreed to sell their payments without understanding what they were giving up.
"It is kind of like a double injury," said Sen. Ron Latz, D-St. Louis Park. "It is adding insult to the injury that led to the settlement in the first place, only in this case it is even more preventable."
Deals to sell structured settlement payments must be approved by a state court judge, but judges said rules forbid them from investigating the seller's circumstances.
Latz and other lawmakers said courts should routinely appoint a guardian to investigate proposed deals and offer recommendations, similar to a system in New Mexico.
A trade group that represents companies that buy settlement payments said it "strongly supports" the appointment of guardians by judges. The group also noted its support for rules in some states that ban firms from seeking a friendlier court for their deals — a practice that remains legal in Minnesota.
"We look forward to continuing our work with legislators in Minnesota and throughout the U.S. to weed out bad actors and enact strong consumer protections," said Brian Dear, executive director of the National Association of Settlement Purchasers.
Judges said their authority needs to be clarified, citing a 2002 state Court of Appeals decision that limits their ability to reject deals for what they see as compelling reasons.
"The law has to change to give judges more discretion in deciding whether these deals are really in someone's best interests," said former Ramsey County Judge Margaret Marrinan, who handled two dozen settlement transfer cases before retiring in 2017.
Minnesota's existing law lacks many of the safeguards featured in other states. Latz, a member of the House Civil Law Committee, said he asked staffers to survey the country and suggest "improvements" to Minnesota's statute by the end of the year. He expects to have legislation ready for the next legislative session.
"This topic is ripe for bipartisan cooperation," said Rep. Jim Abeler, R-Anoka, head of the Human Services Reform Finance and Policy Committee. Sen. Andrew Mathews, head of the Senate Civil Law Committee, said he will hold hearings in the next session.
"I was surprised to learn that so many victims of accidents are essentially revictimized when they sell their settlement for pennies on the dollar, and what techniques these payment companies have used," said Mathews, R-Princeton. "It's clear there are problems with the current law."
Jeffrey Meitrodt • 612-673-4132