In a long awaited move both NSSTA and the settlement industry's big player, AIG, have both come out with forceful policy statements to the structured settlement industry on the issue of Factoring Referrals and the role of factoring in relation to the goals of NSSTA.

In the AIG letter that was sent out to all producers on November 2, 2006 J.P. Steele, the director of AIG/American General structured settlements addressed their concerns regarding factoring referrals. The key elements of the letter to brokers and agents are as follows:

1. AIG had become aware of one of the dirty secrets of the settlement business, that being that many factoring companies had been approaching settlement brokers and firms with a questionable business proposition. That proposition being if the settlement broker would turn over the names of annuitants in the cases they had written over the years, or decades they had been in business, the factoring company would pay a referral fee or commission to the broker for each case that resulted in a factoring transaction.

2. AIG issued a reminder to agents and brokers that participating in this practice is specifically prohibited by federal and state privacy laws and the structured settlement agent agreement with AG Life. As a result they made it abundantly clear that if a broker was found to have engaged in this activity they would face immediate termination of their agent agreement and would be referred to state insurance departments for further action.

3. They further reminded agents and brokers that a settlement agreement is a private contract, the terms of which are usually confidential, and that disclosure of material information could make the agent personally liable under both civil and criminal laws.

Essentially, this was a big, loud warning shot being fired by the 1000 pound Gorilla of the settlement community that the lax standards that have become increasingly prevalent in dealing with factoring companies will no longer be tolerated. Personally, I think this is long over due and hopefully will be a first step among the life markets to remind agents that they are under contract, must uphold privacy laws and resist the easy money being offered by factoring firms by sharing the names of annuitants. Obviously, I feel factoring has a legitimate place in the settlement world and is a crucial safety net for annuitants who are in desperate circumstances and must cash out of their annuity. You can listen to all of my podcasts and those of Matt Bracy and Settlement Capital by visiting the Capital Blog site. However, due care and professional standards must be maintained in the process of marketing to annuitants and informing them of their rights to factor, and the "gentle reminder" provided by AIG is a very positive step in that direction.

In a related move, NSSTA on October 26, 2006 offered to the membership a change intended to bring some of the wayward elements of the organization into compliance with larger mission. The specific wording is that membership in the Association is available only to " a business organization or individual that (a) is engaged in activities that advance the Associations mission, as set forth in Article I, Section 3; and (b) is not engaged, directly or through any related party, in other activities that are incompatible with such mission." They then go on to clarify this rather broad language and definition to include the following as activity's the NSSTA board feels are incompatible with that mission statement:

1.  Actively soliciting and promoting structured settlement factoring transaction to individuals who are receiving periodic payments under structured settlements....Involvement of a NSSTA member or it's affiliates in actively soliciting and promoting liquidation of structured settlements through factoring transaction 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 recieving 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 letter goes on to further outline the NSSTA belief that factoring is ultimately harmful to the general mission of NSSTA and is contrary to the interests of most annuitants, and that the organizations ability to effectively lobby to federal and state governmental officials, as well as the trial bar, judges and others is harmed when members are engaged in an activity that is ultimately harmful to the over all mission.

Clearly, we are looking at the big guns deciding enough is enough on factoring abuse, and that having fought to a stalemate in the war with factoring companies at the federal and state level, as seen by the establishment of section 5891 and the creation of model legislation in the states codifying the process by which factoring can occur, they are now going to flex their muscle in two areas; Agency appointments to write annuities and membership in NSSTA, the largest trade association of settlement professionals. The days of members and agents having a foot in both worlds is about to come to an end.

While I'm largely sympathetic to the industry concerns about the abuses that have occurred, and continue to occur in the factoring area, I'm not entirely comfortable with the heavy handed and broad interpretation the association is taking in keeping its members " inline and in lock step." The facts are that factoring is legal, is being enshrined in both the federal tax code and state law and that those of us who work in the plaintiff market often have a fiduciary responsibility to our client, i.e. the claimant, to advise them of their rights, responsibilities and options regarding factoring if they are the beneficiary of a periodic payment stream. Further, here on this channel and other forums I often take up the issue of factoring, education on issues related to it, and it's not a huge stretch given the broad interpretation of the NSSTA rules that I could potentially be in violation under the provision of "promoting and facilitating settlement factoring transactions." I guess only time will tell on that one.

In the larger and more immediate picture, Symetra and Allstate might need to take a hard look at their factoring subsidiary operations or activities or face removal from NSSTA. Clearly, some changes are going to occur, some feelings will be bruised and people will need to make decisions as to how they handle their business. Stay tuned.