NSSTA Membership Qualifications

Is the National Structured Settlement Trade Association (NSSTA) guilty of hypocrisy when it prohibits its members from "actively soliciting and promoting structured settlement factoring transactions to individuals who are receiving periodic payments under structured settlements?"

NSSTA repeated its prohibition this week in a letter to members which NSSTA first distributed in 2006. NSSTA justifies its prohibition because NSSTA's Board of Directors consider structured settlement factoring transactions incompatible with NSSTA's mission. The primary mission of NSSTA, which appears in the NSSTA bylaws but not on the NSSTA website, 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."

How could NSSTA's prohibition against promoting structured settlement factoring transactions be considered hypocrisy?

NSSTA's letter to its members identifies some of the types of factoring-related activities its Board of Directors has identified as incompatible with its mission. Conspicuous by their absence are: 1) purchasing structured settlement payment rights; 2) lobbying to enact structured settlement factoring legislation; and 3) amending model industry documents to facilitate factoring transactions.

It is common knowledge within the industry that multiple structured settlement annuity providers (NSSTA members), or their affiliates, are active purchasers of structured settlement payment rights after those payment rights have been securitized by structured settlement factoring companies. NSSTA, however, has made no apparent attempt to investigate and/or punish members who promote structured settlement factoring as purchasers thereby helping to generate demand.

NSSTA itself helped to legitimize and promote the growth of the structured settlement secondary market when it collaborated with the National Association of Settlement Purchasers (NASP) to draft and lobby in favor of IRC section 5891 and the Model State Structured Settlement Protection Act. Coincidentally, both the primary structured settlement market and the secondary structured settlement factoring market experienced rapid growth following the 2001 enactment of these enabling laws.

NSSTA further supported and facilitated structured settlement factoring transactions following the enactment of IRC section 5891 when it amended its Model Qualified Assignment and Release form. Paragraph 7 of NSSTA's model form, which represents an important industry standard for structured settlement documentation, now reads in relevant part:

"Acceleration, Transfer of Payment Rights. None of the Periodic Payments and no rights to or interest in any of the Periodic Payments ... can be ....
ii. Sold, assigned, pledged, hypothecated or otherwise transferred or encumbered, either directly or indirectly unless such sale, assignment, pledge, hypothication or other transfer or encumbrance .... has been approved in advance in a "Qualified Order" as defined in Section 5891(b)(2) of the Code (a "Qualified Order") and otherwise complies with applicable state law, including without limitation any applicable state structured settlement protection statute."

Having recognized and facilitated an historic change in structured settlement law, that NSSTA itself helped to enact, by amending a key section of NSSTA's core model settlement document, NSSTA's Board of Directors consciously and strategically failed to take one more critical step. They failed to reconcile NSSTA's mission with a legislative change that fundamentally redefined the structured settlement business.

As a consequence of continuing to promote a mission no longer in sync with existing laws, NSSTA has trapped itself and its members in a strategic dilemma of its own creation. NSSTA should be encouraging its members to utilize the new laws to improve their products and grow their market. Instead, NSSTA selectively proscribes legal activities and restricts innovation that cross an artificial behavioral line of NSSTA's own design. And for what strategic purpose?

So, as primary structured settlement sales plummet and secondary market structured settlement sales soar, is the attitude of NSSTA's Board of Directors toward structured settlement factoring stubbornly hypocritical or strategically challenged or both?