Lottery winners are gamblers, and one of the most popular games in Illinois pays out the winnings over a 20-year period.
Some winners now are allowed to take all of their winnings immediately. But those who don’t are often solicited by what is known as “factoring companies” that buy out their incremental payments for a heavily discounted cash payout now.
Deals range from 90 cents on the dollar to as little as 30 cents on the dollar. What that means is the lottery winner assigns over his annual winnings check to the factoring company for a lump-sum check of a much lesser amount today.
Incremental payments often are also used in personal-injury cases to protect the helpless, the disabled, minors or the spendthrift. These are often referred to in the legal profession as structured settlements.
During the 1990s, a new cottage industry has emerged to profit from people’s personal-injury tragedies. It’s not uncommon to find these factoring companies’ agents scouring court records in search of personal-injury plaintiffs who might be in line for a hefty settlement following a tragic accident.
They monitor them and then follow up on these cases with the “hard sell” months, even years, later to purchase away their future payments, undermining the very protection these people originally bought. These companies are even contacting attorneys through the Internet with claims that they “pay cash now.”
To prey on personal injury plaintiffs who, unlike lottery winners, initially chose a structured settlement for a variety of sound economic reasons, is a heartless, predatory business. Insurance industry statistics show that some 90 percent of personal-injury victims squander such lump-sum awards within five years.
Since the transactions are set up as a purchase and not as financing, the factoring companies can avoid compliance with usury laws as well as many state and federal consumer protection statutes that are aimed at usurious lending practices. Because the secondary market is effectively unregulated, disclosure of information is sparse.
Illinois is trying to be at the forefront of protecting structured settlement recipients in passing one of the first laws in the country that regulates the firms that buy out these structured settlements.
House Bill 1410 was passed by the Illinois legislature by a vote of 117-0 and signed by Gov. Jim Edgar effective Jan. 1 of this year. It requires all lump-sum payments made by third-party settlement purchasers for personal-injury damages awards be approved by the state’s circuit courts. But last January, Sen. Adeline Jay Geo-Karis (R-Zion) sponsored Senate Bill 1645, “The Structured Settlement Protection Act,” which tries to water down these provisions.
The purpose of structured settlements has always been the same–to protect the vulnerable. But these companies claim they are rescuing poor plaintiffs who might suddenly find themselves financially strapped when unforeseen circumstances arise, such as education or housing expenses. I, however, have been involved in many structured settlement deals that take these milestones into account and will pay out a greater amount at these junctures in a person’s life.
