Spitzer Announces First-of-its-kind Agreement To Protect Consumers Who Win, And Then Sell, Personal Injury Settlements

Attorney General Spitzer today announced that he has reached a first-of-its-kind agreement which will protect consumers who receive, and then sell, structured settlements from being charged exorbitant rates as part of the transaction. The agreement is with JG Wentworth of Philadelphia (JGW), the nation's largest specialty finance firm.

Structured settlements are awards given to victims in personal injury and accident cases. The settlements usually take the form of an annuity contract which is issued by an insurance company to be paid out over a set number of years, rather than in an up-front lump sum payment.

Consumers who are looking for a lump sum payment, often turn to companies like JGW, which buy settlements at a substantial discount.

"Until now, the purchase of structured settlements for up-front cash has been unregulated in New York and most other states," said Spitzer.

"Generally, those targeted by specialty finance companies through television and newspaper ads are unsophisticated when it comes to business and legal matters and are without significant means or other income. This historic agreement will provide a model 'bill of rights' for New Yorkers entering in to such contracts."

Under the agreement with the Attorney General, JGW will be limited to receiving a rate of no more than 25%, compounded monthly, of the total amount of future payments which it buys from New York consumers. So for example, if a consumer received a structured settlement of $40,000 to be paid out over four years and then sold the settlement to JGW, the consumer would receive just over $25,000 based on JGW's maximum 25% rate.

Spitzer said that in a substantial number of transactions, JGW effectively received an annual rate of more than 25% of the amount paid to the consumer, and in some cases the rate was as high as 70%.

Each year, Wentworth enters into hundreds of contracts worth millions of dollars with New York consumers.

The Attorney General also noted that consumers who have contracted with JGW have been required to sign a 13 page form which was written in highly complex legalese. The Attorney General's agreement with JGW provides that:

• The discount rate (the amount received by the company) will not exceed 25% annually;
• All contracts will comply with the Plain Language Law, which requires clear writing, using words with common and everyday meanings;
• Consumers will be given a five day cooling off period during which they may cancel the contract without penalty or further obligation;
• JGW will provide New York residents with a number of important disclosures, written in a clear and conspicuous manner and set forth prominently in the contract itself;
• JGW is required to reduce the discount rate of any existing contract to 25% annually for New York residents who file a complaint with the Attorney General or the company.

"Whether consumers choose to sell a structured settlement to a firm like JGW is a decision only they can make," said Spitzer. "What this agreement ensures is that if people do enter into such an agreement they will do so with a full and clear understanding of the consequences and at a rate that complies with state loan laws."

JGW cooperated fully with the Attorney General's inquiry. The company entered into the agreement without admitting any violation of law, or admitting that its transactions constituted loans. It paid $200,000 to Spitzer's office for the cost of the investigation.

The matter was handled by Assistant Attorneys General Stephen Mindell and Herbert Israel of the Consumer Frauds Bureau. Thomas Conway is in charge of the Bureau.