Minnesota lawmakers divide over limits on settlement-payment deals

Minnesota lawmakers are divided over the limits that should be placed on the business of purchasing structured settlement payments, with Democrats proposing the toughest rules in the nation and Republicans seeking less extreme change.

Two bills introduced last week in the Minnesota Legislature would curtail many of the abuses in an industry where people make money by persuading accident victims to part with future payments in exchange for immediate cash.

Most states already go further than Minnesota in restricting the way such transactions are approved. In a series of articles last year, the Star Tribune documented more than 1,700 deals in Minnesota, showing how selling payments wrecked the personal finances of many sellers. In some cases, people sold future payments for just pennies on the dollar.

"We really want to get something done, so we are working with the industry as well as consumer advocates," said Rep. Erin Koegel, D-Spring Lake Park, chief author of the House bill.

Koegel's bill would significantly strengthen the ability of district court judges to review and halt structured-payments deals. Anchored by that provision, Koegel's proposal appears to offer the most sweeping consumer protections on settlement deals anywhere in the country, a Star Tribune review of existing laws in all 50 states showed.

In the Republican-led Senate, Sen. Paul Utke said judges already have a lot of leeway in oversight of settlement deals. He proposed a separate bill that doesn't go as far, saying he wants to limit the industry's "bad actors."

"Like most things, the bad actors get the headlines, but they are the minority," said Utke, R-Park Rapids.

It's early in the legislative process for both measures and too soon to handicap an outcome. Neither bill has been scheduled for committee hearing. Gov. Tim Walz has expressed support for limits on the industry. "We have a fundamental obligation to protect vulnerable Minnesotans," he said last fall.

Koegel said, "If there comes a point when we don't agree and we need to move forward, I am willing to do that, too. I want to make sure people aren't getting hurt by this anymore."

The National Association of Settlement Purchasers — which represents most of the biggest companies — has hired five lobbyists after staying out of Minnesota for eight years. The association declined to comment on the Democratic proposal but expressed support for the Republican bill.

"NASP and its members are committed to working with legislators to weed out bad actors and strengthen consumer protections for structured settlement recipients in Minnesota," Brian Dear, the group's executive director, said in a written response to questions.

In interviews going back to 2019, judges told the Star Tribune that they approved questionable deals because existing laws are vague and leave them without important information about the sellers and their finances.

The Democratic legislation would allow judges to consider a wide range of factors in determining whether a deal is truly in a seller's best interest, including their age, maturity level and "legal knowledge."

Judges also could consider whether a seller is capable of understanding the transaction and whether they can work. Many sellers are disabled and rely on their settlement payments to cover bills. Judges would also be allowed to determine whether the terms are "fair and reasonable."

"That's groundbreaking," said Eric Vaughn, executive director of the National Structured Settlements Trade Association, a group that represents the insurance companies that fund structured settlements. "Encouraging a judge to make a best-interest determination is huge."

Consumer advocates said the most revolutionary proposal in the House bill is a provision that would allow judges to appoint an independent "evaluator" who could investigate a proposed transaction and provide findings to the court.

The proposal would codify an informal approach taken by judges in New Mexico, who often appoint a guardian ad litem to advise the court when a person who is selling their future payments has young children or there are concerns about a seller's mental status.

"What we are hearing is that judges don't feel like they have the tools they need to stop these sales," Koegel said.

The House bill also would sharply limit the discount rate companies use to calculate the amount of money paid to accident victims, using a formula in North Carolina that has curtailed the number of proposed deals by so-called factoring companies.

The only reform included in both the House and Senate bills is a provision that would end the practice of forum shopping, where structured-payments companies file cases far from the home of a customer to find the friendliest judge.

In the Senate bill, companies would have to register with the state, but the job of enforcing the rules would fall on local judges, who would be given the authority to revoke or suspend a company's registration, or bar it from pursuing more deals in Minnesota if the company has engaged in misleading advertising or other prohibited conduct.

"If there is competition, we have to make sure it is legitimate," Utke said.

The Senate bill also would bar competitors from poaching business from a company once it has sought court approval for a deal.

"The (Senate) bill ostensibly would provide some consumer protections, but many of those protections are illusory at best," said Washington, D.C., attorney Craig Ullman, who has been involved in drafting more than half of the laws governing settlement deals in the United States. "The principal objective of that legislation is to protect major factoring companies against competition."