NSSTA's Bylaw Amendments

During NSSTA's 2006 Annual Meeting, voting members of the National Structured Settlement Trade Association (NSSTA) adopted three amendments to NSSTA Bylaws which revised:

• NSSTA's Mission Statement - NSSTA's new primary mission is "to promote the establishment and preservation of structured settlements in order to provide long-term financial security to personal injury claimants and their families through periodic payment of compensation." (emphasis added).

• NSSTA's Membership Qualifications

• Confirmation of Continuing NSSTA Membership Eligibility

In an October 26, 2006 communication to its members (which include this blog's author), NSSTA's Board of Directors identified the following activities as incompatible with NSSTA's amended mission, whether undertaken directly or through an affiliated entity:

1. "Actively soliciting and promoting structured settlement factoring transactions to individuals who are receiving periodic payments under structured settlements. Under such factoring transactions, the rights to future periodic payments under the structured settlement are purchased from the recipient in exchange for a discounted lump sum, resulting in the partial or complete dissolution of the structured settlement and depriving injury victims and their families of the financial security that structured settlements are designed to provide. Involvement of a NSSTA member or its affiliates in actively soliciting and promoting liquidation of structured settlements through factoring transactions impairs NSSTA's credibility, and consequently its effectiveness, in advocating the use of structured settlements to provide long-term financial security."
2. "Sharing information and documentation about existing structured settlements with, or using such information to solicit factoring transactions for, an entity engaged in structured settlement factoring transactions with respect to individuals receiving payments under structured settlements." 
3. "Using the status of NSSTA member and access to NSSTA communications channels to promote and facilitate structured settlement factoring transactions."
4. "Selling payee names/addresses or other identifying information to an entity engaged in structured settlement factoring transactions."

The NSSTA communication further notes: "Because activities of the type described above are inconsistent with the membership qualifications, engaging in those activities can lead to suspension or expulsion from membership and to denial of new membership applications." (emphasis added)

Observations and Questions

NSSTA's first prohibited activity appears to be directed at factoring companies and factoring brokers (neither of which historically have been permitted to join NSSTA) as well as existing or prospective NSSTA members who sollicit and promote, or might sollicit and promote, factoring transactions. Such NSSTA members presumably include annuity providers like Symetra, which sollicits and promotes factoring transactions using its affiliate, Clearscape, and All State, which offers a commutation product. This prohibition raises the issue of what NSSTA means by "sollicit and promote".  For example:

• Does a NSSTA member "sollicit and promote" factoring by informing an existing structured settlement recipient about transfer rights and requirements under IRC Section 5891 and state structured settlement protection statutes?
  

• If yes, is NSSTA attempting to prohibit members from educating existing (or even prospective) structured settlement recipients about laws that NSSTA dislikes but which impact the rights and options of structured settlement recipients?
  

• Does it matter to NSSTA whether such a communication precedes, or responds to, an inquiry about factoring from a structured settlement recipient?
  

• And what about NSSTA annuity providers who purchase securitized structured settlement payment rights from factoring companies?  Don't these NSSTA members indirectly "sollicit and promote" factoring?
  

NSSTA's second prohibited activity appears unnecessarily restrictive.  What if an existing structured settlement recipient contacts a NSSTA member (producer or annuity provider) for information or assistance with a factoring transaction and further requests (and authorizes) the NSSTA member to share information and documentation with one or more factoring companies?

NSSTA's third prohibited activity needs additional explanation from NSSTA.  How could a NSSTA member use his or her NSSTA member status to promote and facilitate factoring transactions?  What are NSSTA's "communications channels"?  Is this prohibition intended to prevent education and open discussion about factoring at NSSTA meetings and among NSSTA members?

NSSTA's fourth prohibited activity (selling information) appears to be an unnecessary variation of the second prohibited activity (sharing information and documentation).  NSSTA members are not permitted to share information and documentation about existing structured settlements with factoring companies.  But, if NSSTA members do share information, they are not permitted to receive compensation.  If compensation is the issue, what about NSSTA annuity provider members almost all of which receive "administrative fees" from factoring companies as a condition for not opposing specific factoring transactions?

So what is NSSTA's position on factoring? 

• NSSTA cooperated with NASP (National Association of Settlement Purchasers) to secure enactment of IRC Section 5891 and continues to cooperate with NASP in promoting the Model State Structured Settlement Protection Act. 
  

• NSSTA closely monitors factoring legislative and case law developments.
• NSSTA proactively educates judges and workers compensation administrators about factoring legislation.
  

• However, almost five (5) years following enactment of IRC Section 5891, NSSTA provides almost zero education for NSSTA members about factoring including:
  

• How NSSTA members should address factoring issues in settlement negotiations: who has what obligations to inform prospective structured settlement recipients about IRC Section 5891 and applicable state protection statutes?  What about optional product information and settlement documentation language to assist claimants achieve their settlement planning objectives?
  

• Whether and how NSSTA members should inform existing structured settlement recipients about IRC Section 5891 and applicable state structured settlement protection statutes.  If NSSTA and its members refuse to inform existing structured settlement recipients about these laws, what qualifies NSSTA or its members to object or criticize when others do so?
  

• How NSSTA members might improve and align their products, services and documentation to address and conform with existing federal and state factoring legislation.
  

• NSSTA has amended its bylaws to prohibit NSSTA members from participating, directly or indirectly, in factoring.
  

• NSSTA continues to attribute proliferation of factoring, as well as preemption of the "structured settlement" brand, to the bad business practices of factoring companies.
  

For a copy of NSSTA's Amended Bylaws, see NSSTA's website.

For additional information about structured settlement factoring (aka structured settlement transfers):

• Search NSSTA's website; or
• Check out these additional S2KM blog posts:
  • Structured Settlement Transfers
  • Settlement Transfer Update
  • NASP Conference - 1
  • Overview of the Structured Settlement Market
  • How the Primary Market Views Factoring
  • The Future of Structured Settlements
• Also, check out the blog posts and podcast interviews on The Settlement Channel and The Factoring Channel featuring:
  • Mark Wahlstrom
  • John Darer
  • Matt Bracy

For additionals S2KM blog posts about NSSTA, see:

• NSSTA 2006 Fall Regional Meeting - S2KM Summary
• NSSTA 2006 Fall Regional Meeting - S2KM Wiki
• NSSTA 2006 Annual Meeting
• NSSTA 2006 Annual Meeting - Take 2
• NSSTA 2006 Winter Regional Meeting
• NSSTA 2005 Fall Regional Meeting
• NSSTA 2005 Annual Meeting - Part One
• NSSTA 2005 Annual Meeting - Part Two