Minnesota lawmakers advance bills that would crack down on settlement abuses

Minnesota could become the first state in the nation to require the appointment of an outside attorney to advise judges on whether to approve the sale of structured settlement payments for anyone who appears to suffer from mental or cognitive impairments.

That requirement is part of a Senate bill that passed its first major legislative hurdle Thursday, when the Senate civil law committee unanimously approved a Republican proposal to crack down on abuses in the structured settlement industry.

A competing reform bill advanced this week in the House, where Democrats are offering an even broader package of consumer protections.

The biggest difference is that the House proposal allows — but does not require — judges to appoint an outside evaluator in any case involving the sale of structured settlement payments.

A Star Tribune series published last fall revealed that many of the structured settlement deals approved by Minnesota judges involve 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, including people institutionalized at the time they agreed to sell their payments or who struck deals shortly after they were released.

"I was real upset when I read the Star Tribune exposé," said Sen. Karla Bigham of Cottage Grove, the ranking Democrat on the civil law committee. "We don't want anybody taking advantage of anybody, and that is what the whole point of these bills are."

Judges are required to review such transactions to see if they are in the best interests of accident victims, but the courts routinely approve these deals after short hearings at which no one questions the merits, records show.

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.

Lawmakers noted how the frequent use of independent evaluators in Albuquerque, N.M., has sharply reduced the number of sales that get approved. Many accident victims there ultimately pull out of deals after reviewing their financial situations with an outside expert.

Albuquerque judges began making such referrals independently, without a change in state law, after seeing people agreeing to lopsided transactions that left them impoverished.

Though the mandatory use of such evaluators has long been opposed by the National Association of Settlement Purchasers (NASP), the industry's main trade group, NASP officials testified in favor of the proposal by Sen. Paul Utke, R-Park Rapids.

Brian Dear, executive director of NASP, testified that he was "deeply troubled" by the Star Tribune series, noting that certain "bad actors" in the industry were responsible for "great damage" to accident victims.

"We want to make absolutely certain that if there is any concern by the court that a person may not have the cognitive or mental capacity that they need, that the court has to, in that circumstance, appoint someone to look after them," Dear testified. Vulnerable Minnesotans, Dear added, should have "all the protections in the world."

Advocates said the Senate bill, however, lacks some of the important protections offered by the House bill, which requires judges to consider a wide range of factors in determining whether a deal is truly in a seller's best interest, including their "apparent maturity level," ability to hold a job and their overall financial situation.

The House bill would require that judges look at how the sale of future settlement payments could affect a seller's ability to pay their bills without that financial lifeline.

"Some of these settlement purchasing companies prey on these consumers by hounding them with solicitations, pressuring them to sell for only a fraction of what they are guaranteed to receive," Minnesota Attorney General Keith Ellison told lawmakers during a House hearing this week. "That means they often have to be taken care of by taxpayers and other people."

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 from North Carolina that has curtailed the number of proposed deals by so-called factoring companies in that state.

The Senate bill merely requires judges to consider whether the discount is "in line with the market rate for similar transfers."

Advocates noted that the Senate bill also lacks any limits on the industry's relentless marketing tactics, which include frequent phone calls and texts and solicitations featuring signing bonuses that look like checks.

Those tactics "often cross the line into harrassment," said Rep. Erin Koegel, D-Spring Lake Park, chief author of the House bill.

During the House hearing, a lobbyist representing the NASP said the trade group can't support the House bill in its "current form." NASP officials declined to provide specifics.

Lawmakers in both chambers promised to keep working on the bills to come up with a compromise that can be approved on a bipartisan basis and signed by Gov. Tim Walz this year.

"There are still a few minor points to work out, but we are making great progress," Dear said. "I would say we are 95% there."