People who receive money every month from a structured settlement take note: factoring companies can be a threat to your financial stability. They offer a lump-sum consolidation payment to people who are receiving structured settlements as a result of good or ill fortune. In the past decade, they have grown from nothing to a half-billion dollar industry.
The sad fact is that even people who have some degree of guaranteed income come up against serious illness, the threat of bankruptcy, or the desire to invest in a home or a startup business. A factoring company may seem the answer to these problems. They will buy a portion of the prospective payments for a negotiated sum. Here's the catch - though the sum may sound big upfront, it ends up being anywhere from about 16 percent to more than 50 percent less than the actual total of payments owed.
This practice has many lawyers and insurance companies concerned that people are making quick deals for quick cash without the benefit of a vital piece of the decision: informed consent. They insist there's predatory aspect to factoring offers; for example, the companies target unsophisticated viewers of much late-night TV.
Often, there are better ways to get the money, like a bank loan. Even borrowing against a credit card can be cheaper in the long run. Reacting to stories of people suffering from losing their guaranteed income stream, some personal injury lawyers are now advising clients to accept lump-sum settlements and place them in trust, which gives them flexible access to the money, trustees to turn to with questions, and fair yields on their investments.
Beware of factoring companies, and consult your attorney for the best advice concerning structured settlements, lump sum moneys and possible trust establishments.
(Based on "Are Structured Settlements Still Safe?" by Eric Berkman, Lawyers Weekly USA, September 20, 1999)