RICHMOND — Virginia lawmakers and legal experts on Monday urged changes to laws governing the sale of structured court settlements to prevent companies from preying upon people in financial distress.
The calls came on the same day The Washington Post published an investigation into questionable industry practices. They also came four weeks after Del. Terry G. Kilgore (R-Scott) filed legislation to rein in the settlement-purchasing industry, which offers cash upfront to people in exchange for money bound up in structured settlements. Lawyers often recommend the arrangements, in which cash from lawsuits is dispensed in installments over years, to protect vulnerable people from spending a large payout all at once.
“Every once in a while you hit the sweet spot where your bill addresses something people are interested in,” said Kilgore, who filed the legislation Nov. 30. “We need to make sure everything’s on the up and up.”
The Post investigation told the story of burn survivor Terrence Taylor, who as a child was diagnosed with a cognitive impairment and who has sold $11 million in future payments for a small fraction of their current-day value. A similar Post investigation, published in August, led to court reforms to protect recipients of structured settlements in Maryland.
The Virginia story drew attention to Portsmouth lawyer and delegate-elect Stephen E. Heretick (D), who has worked for more than a dozen settlement-purchasing firms. He has handled thousands of purchase agreements, including 10 involving Taylor.
Heretick, who was elected with strong support from Gov. Terry McAuliffe (D) and liberal advocacy groups, called Taylor’s case a “significant anomaly” among structured-settlement sales and defended the practice, which he said can help people save their homes or afford medical care.
“I plan to serve honorably,” he said. “I am sorry that this, of course, appeared at the time that it did. Nonetheless, we’ve done nothing wrong. I’ve simply followed the law as it’s written and tried to apply it fairly in every case.”
Virginia is among 49 states that require county courts to discern whether a settlement-purchase deal is in the seller’s best interest. But industry experts say there are weaknesses in Virginia’s law: Structured-settlement recipients who want to sell their payments are not obligated to attend hearings, and companies can file their deals anywhere in the state.
Kilgore’s bill would require cases to be filed and heard in the jurisdiction where the seller lives and require the seller to appear in person at the hearing. The bill says a purchase application must include a summary of prior transfers as well as notice of the hearing.
The National Association of Settlement Purchasers said it is aware of flaws in laws around the country and worked with Kilgore on the Virginia bill. “These reforms and protections, just like similar reforms enacted in Illinois and Wisconsin, provide potential sellers a better opportunity to make informed decisions. Our organization believes that transparency helps deter unscrupulous actors,” NASP President Patricia LaBorde said in a statement.
Maryland’s court system recently reformed its settlement-purchase process after a Post investigation revealed problems with it.
Jack Harris, executive director of the Virginia Trial Lawyers Association, said he agreed that reform is necessary to protect people who have structured settlements. In general, such agreements are put in place to ensure a steady flow of monetary support to people who, because of their age or cognitive abilities, are less able to make long-term financial decisions.
“I think it’s very clear that the law is not strong enough,” Harris said. “The very fact that they have a structure indicates that they need protection.”
Del. David B. Albo (R-Fairfax), who generally favors limiting government intervention in people’s financial affairs, said that with structured-settlement purchases, more oversight may be needed. “Obviously the current system’s not working,” he said.
Del. Gregory D. Habeeb (R-Salem) said that there are times when sale of a structured settlement makes sense but that the law isn’t working the way it should to catch “bad actors.”
He also sounded off against McAuliffe and other Democrats who in the June primary supported Heretick over longtime Del. Johnny S. Joannou (D-Portsmouth). Joannou was the only Democrat to oppose McAuliffe’s plan to expand Medicaid coverage in Virginia under the Affordable Care Act.
“I think it says a lot about the Democratic Party that purports to fight for justice, to protect the disadvantaged,” Habeeb said. “Then they will throw their full backing against someone who has apparently used loopholes to take advantage of people.”
Tram Nguyen, co-executive director of New Virginia Majority, a progressive activist group, said she hopes Heretick uses his new role as a legislator to strengthen consumer-protection laws.
Joannou “took every opportunity to vote against our values and against working families,” she said. “And so we’re going to hold every other elected official to that same standard, whether it’s Steve [Heretick] or anybody else.”
Heretick said he would probably abstain from voting on Kilgore’s bill in the upcoming legislative session but supports bringing more transparency to the process.
“Nobody wants a bad deal,” he said. “Nobody wants to end up on the front page of The Washington Post.”