SC was failing to protect injury victims’ money. What’s changed since our investigation?

Fewer controversial deals between lightly regulated companies and injured South Carolinians are getting approved in the months following a McClatchy investigation and a resulting order from the state’s Supreme Court Chief Justice.

JG Wentworth and other companies have for years been purchasing accident victims’ future structured settlements for immediate lump sums, often for pennies on the dollar, McClatchy found.

The newspaper’s investigative series, Cashed Out, which detailed sellers with severe brain injuries and other trauma being stripped of their financial security after agreeing to deals they couldn’t understand, created immediate change. And more change could be on the horizon, with high-ranking legislators introducing a bill last week to address McClatchy’s findings.

Since the series’ September publication, just 55% of the 29 deals that reached hearings in South Carolina have been approved, court records show. That’s down from an approval rate of more than 94% during 2014-2021. The 13 denials represent the most in South Carolina of any three-month time span since at least 2014, according to McClatchy’s analysis.

Supreme Court order

The reason is likely a September order by S.C. Supreme Court Chief Justice Donald Beatty who, in response to McClatchy’s findings, restricted these deals from being heard by master-in-equity judges or special referees, who are private attorneys appointed to act as judges in certain cases.

The deals operate under a state law requiring final approval by a judge, who must determine whether the sale is in a seller’s best interest. But McClatchy’s investigation revealed the law offered minimal protections, and the companies were often directing the transfers to preferred judges, who offered little scrutiny.

The cases are now exclusively being heard by circuit court judges, who have mostly proven more thorough in protecting the sellers’ future payments.

During a November virtual hearing attended by a McClathcy reporter, an Orangeburg County woman sought a judge’s approval to sell $125,000 of future payments from her structured settlement for $8,000 in immediate cash. But her inability to answer one of the judge’s first questions quickly derailed the deal.

“How old are you?” Circuit Court Judge Robert Bonds asked the woman appearing via cell phone video in a car.

“Thirty-four. I believe, (I was born) in 1988, (so I’m) 33, 34,” she responded, telling the judge she could figure it out if she had a pen and paper. She later suggested she could be 35, asking whether the current year was 2023.

The woman was attempting to transfer some of her structured settlement to JG Wentworth.

After finding out the Orangeburg County woman had received her settlement from a car accident years earlier, Bonds asked if she had received a brain injury as a result. When she couldn’t answer definitively one way or another, the judge cut the hearing off and told JG Wentworth’s attorney he couldn’t approve the deal.

Had the hearing taken place just a few months earlier, a different judge might have approved the transaction. After all, S.C. judges had previously allowed her to transfer 38 years worth of her $1,105 monthly payments to JG Wentworth in two separate deals, according to court records.

Bonds referenced Beatty’s order before a separate hearing for a structured settlement transfer, which he also ended up denying.

“I ... feel as though there was perhaps some encouragement for what I would call some additional scrutiny in terms of looking at, evaluating, questions I might be asking the (sellers),” he said.

The sales that were approved continue to heavily favor the purchasing companies, often referred to as structured settlement factoring companies. For the 11 deals approved since September where full data was available, sellers exchanged nearly $5 million in future payments for less than $500,000 in lump sums. The discounted present value of those payments — a calculation based on a federal rate that assumes money in the future is worth less than the present — was estimated at about $1.7 million.

How are judges responding?

Since Beatty’s order, a McClatchy reporter has listened in on 14 hearings for these cases, overseen by eight different judges. Most asked probing questions about the sellers’ financial situations and educational backgrounds to help them make a best interest determination.

When a Spartanburg County woman sought to exchange $98,000 of her future payments for a $58,200 lump sum to build tiny homes in New Hampshire, Judge Keith Kelly asked her several questions about why she wouldn’t instead seek a construction loan, which he believed would end up costing her less.

(I)t appears to this Court that Seller and her husband can financially afford the tiny houses project with their current income and accumulated assets,” Kelley wrote in his order denying the deal. “The price of money is still relatively low in the financial markets.”

One key piece of information most judges missed was whether the seller had previously sold other portions of their structured settlement. Bonds was the only judge to ask about previous sales during the hearings witnessed by the McClatchy reporter.

The factoring companies are known to target their marketing toward people who have already completed transfers since their information is then publicly available, according to previous McClatchy reporting, which found more than 63% of the deals completed between 2014 and 2021 in South Carolina involved sellers who sold future payments multiple times.

Industry experts say judges typically treat cases differently when they know about previous sales because it leads to questions about how they spent the money.

Judge Cordell Maddox permitted a 25-year-old Horry County woman in September to transfer $2.8 million in future payments — with a discounted present value of $460,000 — to JG Wentworth in exchange for a lump sum of $18,000 without asking about prior transfers.

She had previously sold more than $1.8 million in four previous deals, court records show, and a different judge had just denied a similar deal in August, noting in his denial letter that she disclosed her previous deals during the hearing.

Maddox, who did not return a request for an interview, spent time during the hearing praising JG Wentworth’s attorney as someone he has always trusted.

Legislation being proposed

Disclosure of previous deals is required in several other states including Illinois and Tennessee, but not currently in South Carolina. State Sens. Luke Rankin, R-Horry, and Tom Young, R-Aiken, prefiled a bill last week ahead of the 2023 legislative session to add that provision.

The bill, which was created in response to McClatchy’s investigation, is the first proposed amendment to the state’s Structured Settlement Protection Act since it was implemented in 2002.

Their bill also requires factoring companies to register with the S.C. Secretary of State and that deals be filed in the county where sellers live.

McClatchy had previously discovered dozens of deals filed and approved in counties where the seller didn’t live, and an attorney that represents several factoring companies admitted they were seizing on language in South Carolina’s law that specified the deals “may” be filed in the county where the seller lives. Rankin’s bill would change that “may” to “must,” as has been done in several other states including Florida and Virginia.

The bill will need to first pass through the Senate Judiciary Committee, where Rankin serves as chairman.

Eric Vaughn, executive director of the National Structured Settlement Trade Association, which represents the consultants, attorneys and insurance companies that help set up these settlements, said he was happy to hear that judges are more closely scrutinizing these deals since McClatchy’s investigative series published.

The association has been in talks with Beatty’s office to bring a judicial education program to South Carolina early next year that would teach judges about structured settlements and what factors to consider when overseeing a proposed transfer case, Vaughn said.

“You’re not going to change this market ... overnight, but just asking the questions and demanding that they deliver more information makes these deals more expensive and less profitable,” he said. “That’s a huge accomplishment all by itself.”