Gov. Tim Walz signs law addressing settlement abuses

Gov. Tim Walz on Thursday signed a law that's expected to reduce abuse of accident victims who depend on structured settlements to pay their bills.

The measure passed the Senate unanimously last week and was given final approval by the House on Monday in a 126-5 vote. The law takes effect Aug. 1.

The legislation was prompted by a Star Tribune investigation that showed how a largely unregulated portion of the financial services industry preys upon people who have suffered catastrophic injuries and received court settlements aimed at providing them with a financial safety net.

Walz was among the first to call for reforms before the series even finished publishing last fall.

"I'm grateful to the Legislature for taking on the complex yet horrific issue of predatory settlement practices," he said in a statement.

"This bipartisan and comprehensive solution will protect our most vulnerable citizens, making Minnesota a national leader in ensuring all are protected against exploitation within our criminal justice system."

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. In some cases, people sold future payments for just pennies on the dollar.

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.

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.

Under the new law, Minnesota will become the only 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.

"I think it is a very good idea," said Stanley Turner, a car accident victim who suffered permanent brain damage in a car accident when he was 5.

In 2019, Turner was persuaded to sell more than $500,000 in future payments for just $12,001 even though he didn't understand what he was giving up in the deal.

"I am still struggling," Turner said. "My life is in a shambles."

No other state routinely requires the appointment of an independent adviser to protect the interests of a seller. Minnesota's judges also will be able to appoint an independent adviser on any case if they want an outside opinion on the sale. Those advisers will be paid by the factoring companies, with costs capped at $2,000 per case.

"This gives judges the tools to assess whether something is really a good move," said Margaret Marrinan, the former Ramsey County district judge who handled at least 16 proposed settlement sales before retiring in 2017.

"You don't want to be a big brother, constantly looking over people's shoulders," Marrinan said. "On the other hand, there are an awful lot of people who really don't have a clue as to what they are doing."

The new law requires 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 overall financial situation.

Companies will be barred from engaging in the kind of relentless marketing tactics that have enraged many settlement recipients, who say they have been awakened by telemarketers at all hours with offers to buy their payments.

"We went from one of the loosest systems in the country to one of the tightest," Marrinan said. "There is a real sense of satisfaction out there among the judges that the Legislature has done this to protect people."

Under the new law, companies will be barred from contacting any settlement recipient who opts out of solicitations. For those who agree to take sales calls, companies will not be able to contact them before 8 a.m. or after 9 p.m. Companies also will not be able to offer advances, gifts or other "inducements" to enter into a deal, or use solicitations that resemble checks — all common tactics.

"I still get multiple mailings every week from companies, and every time you get one of those checks it makes you think of selling," said Laura Dalluhn, who was confined to a mental institution when she was talked into selling more than $60,000 in future payments for less than $25,000 in 2019. "It would be good to get rid of that."