State Lawmakers Pledge to Fix Predatory Purchasing of Accident Settlements
Last week, state lawmakers announced they will be pushing for new legislation to try to end predatory business practices that result in accident victims selling their settlements at huge discounts.
This move comes after a Minnesota Star Tribune investigation that revealed hundreds of accident victims sold a significant portion of their settlements for upfront cash payments. However, many gave up their settlements for pennies on the dollar.
In many cases, victims who agreed to sell their settlements had suffered long-term injuries, such as traumatic brain injuries. One of every eight of these transactions in Minnesota involved an injury victim with documented mental health problems.
“The stories behind this investigation are heartbreaking, and any exploitation of Minnesotans’ pain or injury is unacceptable,” said Governor Tim Walz.
One of our state’s U.S. senators, Tina Smith, is calling for an investigation of the situation by the Consumer Financial Protection Bureau.
The Star Tribune’s investigation revealed settlement purchasing companies buy approximately $1 billion in future settlement payments. The investigation also found these companies keep about 60 percent of the money, on average. (The Star Tribune looked at more than 2,400 deals in seven states between 2000 and 2020.
In some of the largest transactions, victims were paid less than 20 percent of the current value of their money.
Some legislators are calling for the state to set a minimum threshold for these deals requiring victims to get back nearly 100 percent of the current value of the settlement.
However, some lawmakers say they should not set such strict requirements, as some victims end up in financial trouble and need to sell future payments. Executives at companies that buy settlements have argued people should be free to make their own financial decisions. They also point out judges have the power to protect settlement recipients from unscrupulous companies.
Some lawmakers have pointed out New Mexico as a model for more closely scrutinizing these deals. Minnesota could require courts to appoint a guardian to investigate proposed deals and make recommendations, which would be similar to what happens in New Mexico. In fact, a trade group for companies that buy settlement payments is strongly in support of judges appointing guardians. Currently, Minnesota law does not have these kinds of safeguards in place.
However, judges have said they need clarification on their authority to reject deals for compelling reasons. They have cited a state Court of Appeals decision from 2002 that they say limits their authority in these matters.