Structured Settlements Secondary Market and Factoring 2

Question 1

What is the typical legal structure used by factoring companies to resell purchased structured settlement payment rights to investors?

Accepted Answer

Securitization — pooling payment rights into asset-backed securities sold to institutional investors

Answer

Factoring companies commonly pool acquired payment rights and issue asset-backed securities, allowing institutional investors to purchase interests in the diversified pool of structured settlement cash flows.

Question 2

What is the 'face value' of a structured settlement payment stream in factoring transactions?

Accepted Answer

The sum of all future payments without any discounting

Answer

Face value (or gross value) is the simple arithmetic total of all future periodic payments, before any time-value discounting.

Question 3

Why is the effective discount rate in a factoring transaction often higher than the nominal rate disclosed?

Accepted Answer

Because fees, closing costs, and the timing of payment receipts mean the true cost to the payee exceeds the nominal discount rate

Answer

Transaction costs and fees reduce the net amount the payee receives below what the nominal discount rate alone would suggest, making the effective (APR) rate higher than the stated rate.

Question 4

Can a factoring company acquire structured settlement payment rights without a transfer agreement signed by the payee?

Accepted Answer

No — a voluntary transfer agreement signed by the payee is a prerequisite to any court approval process under SSPAs

Answer

SSPAs require a voluntary, written transfer agreement from the payee as the foundation of the court approval process — involuntary transfers are prohibited.

Question 5

What recourse does a structured settlement payee have if a factoring company violates SSPA disclosure requirements?

Accepted Answer

The payee may rescind the transfer agreement and potentially seek damages under state consumer protection laws

Answer

Failure to comply with SSPA disclosure requirements can render the transfer agreement voidable, entitling the payee to rescind and potentially recover attorney fees and damages under state law.

Structured Settlements Practice Test

Structured Settlements Practice Test

Structured Settlements Secondary Market and Factoring 2