West Virginia Update

The West Virginia legislature has amended and reenacted the state's current structured settlement protection statute.  According to Representative Ronald N. Walters, one of the bill's sponsors, West Virginia Governor Joe Manchin is expected to sign House Bill 4613 into law within the next few days.

The reenacted statute is noticeably different than West Virginia House Bill 4380 which S2KM previously summarized. Most significantly, the reenacted statute does not include any maximum discount rate. The original bill contained a maximum discount rate not to exceed "the current annual average percentage rate of interest on twenty year residual mortgages offered in this state, as determined by the banking commissioner." Factoring companies claimed this maximum discount rate would eliminate structured settlement transfers in West Virginia. Walters acknowledged his original intent was to do just that.

If signed into law by Governor Manchin, the amended West Virginia statute (now titled House Bill 4613) will:

• Add some consistency between West Virginia's statute, IRC section 5891 and the Model State Structured Settlement Protection Act (Model Act) by:
  • Broadening application from "an infant or an incompetent person" to anyone with structured settlement payment rights arising from a personal injury or other claim; and
  • Eliminating a $40,000 threshold amount;
• Confirm that a court may appoint a guardian ad litem for any person; and must appoint a guardian ad litem for an infant, an incompetent or a ward of the court;
• The court will award the guardian ad litem reasonable fees for representing the consumer.
• The transfer company will pay for "such attorneys' fees and costs".
• Require the guardian ad litem to:
  • Review the requisite disclosures;
  • Make an independent inquiry to determine whether the proposed transfer:
    • Is fair and reasonable;
    • In the best interests of the consumer and any dependents of the consumer;
    • Has not been attempted or accomplished before.
• Report the results of that inquiry to the court during the hearing;
• Inform the consumer about "possible adverse tax consequence to the consumer" - a responsibility the guardian ad litem and the transfer company will now jointly share in West Virginia;
• Reconfirm the current West Virginia approval standard: the consumer must now "clearly" demonstrate that
  • He or she, or his or her family, is facing a financial hardship that the transfer would alleviate and the transfer would not subject the consumer or the consumer's family to undue hardship; or
  • The transfer is in the best interest of the consumer.

Reaction from the factoring companies to the new West Virginia statute has been generally positive. According to Earl Nesbitt, Executive Director of the National Association of Settlement Purchasers (NASP), the amended West Virginia legislation will have a "minimal impact".

Nesbitt, however, did express concern about NSSTA's conduct (or lack thereof) in West Virginia. In Nesbitt's view, NSSTA's failure to actively lobby for the Model Act in West Virginia violated the spirit, if not the letter, of NSSTA's 2000 agreement with NASP to support the Model Act.

NSSTA representatives have refused to comment about the West Virginia legislation - except to say  "NSSTA supports the Model Act."  According to Walters, NSSTA's General Counsel Craig Ulman did contact Walters early in the process to communicate that "NSSTA supports the Model Act". Other than one telephone communication, however, Walters said he has heard nothing from NSSTA and has received no support from NSSTA. "Craig [Ulman] told me I was on my own".

In Walters' view, "the Model Act does not go far enough". According to Walters, "West Virginia's new law will provide greater protection and greater clarification plus a tougher standard" than the Model Act. Walters said he may introduce additional legislation in 2009 requiring factoring companies to have insurance licenses.  Walters, one of legislative sponsors of West Virginia's House Bills 4380 and 4613, also manages the Charleston, West Virginia office of Structured Financial Associates, Inc. (SFA). SFA is a NSSTA member although Walter individually is not.

Some of the questions NSSTA members should be asking their leaders (and themselves) about settlement transfers:

• What are NSSTA's legislative and educational objectives and strategies for settlement transfers?
• What does NSSTA mean when NSSTA says "we support the Model Act"?
• How did NSSTA support the Model Act in West Virginia?
• Is the new West Virginia statute better or worse than the Model Act:
  • For consumers?
  • For state judges?
  • For transfer companies?
• What should NSSTA members say to their clients and other structured settlement stakeholders about settlement transfers?
• What conduct by NSSTA members represents best professional practices relative to settlement transfer issues and responsibilities?

For additional information:

• West Virginia's Structured Settlement Protection Statute - see this prior S2KM blog post.
• State Structured Settlement Protection Statutes - see Chapter 16 of "Structured Settlements and Periodic Payment Judgments"
• Secondary Life and Annuity Markets - see this prior S2KM blog post.