Factoring Tax Considered.

Congress considers consumer protections for injury victims and motorists; critics say patients' bill of rights is worse than original.

Factoring companies that buy structured-settlement payments would have to pay a 40% federal excise tax if they make such deals without court approval, under a new bill introduced by congressmen from Florida and California.

The tax is included in proposed consumer protections for injury victims who receive structured-settlement payments. The Structured Settlement Protection Act, HR5421, was introduced by Reps. Clay Shaw (R-Fla.) and Pete Stark (D-Calif.). The proposed legislation addresses concerns over the practice of "factoring," in which companies buy future structured-settlement payments from injury victims in exchange for cash.

Under the legislation, the factor would be taxed unless a state court approves the transaction as being in the best interest of the victim, and courts must take into account the welfare of the victim's dependents and make sure the agreement does not violate any laws or court orders, said Randy Dyer, executive vice president of the Washington, D.C.-based National Structured Settlements Trade Association, which supports the bill.

The factoring of structured-settlement payments has attracted much attention in recent years because of harm to the financial security of the injured and their families, Dyer said. But states must enact laws that work in conjunction with this federal bill to solve the problem, he said.

The tax, which would be due immediately, would be paid on the difference between the cash paid to the victim and the total of payments due under the settlement. For example if a factoring company gives an injury victim $20,000 in exchange for $100,000 in payments due over the next 20 years, the $80,000 would be taxed at 40%.

Since 1997, 16 states have enacted consumer protections on the factoring of structured-settlement payments.

The Shaw-Stark bill is part of an overall package that includes model state legislation agreed to by the structured-settlement and settlement-purchasing industries, Dyer said. "When state legislatures see the need for this and see that it's noncontroversial since factoring companies have also agreed to it, we'll quickly see legislation pass all around the country."

The Shaw-Stark legislation is identical to a provision in S3152, the Community Renewal and New Markets Act of 2000. If the act passes, then the Shaw-Stark proposal would become law. If it doesn't pass, Dyer said the ShawStark bill could be attached to another piece of legislation. The bill also replaces similar legislation in HR263, which was co-sponsored by a bipartisan majority of the House Ways and Means Committee, and S1045, co-sponsored by a bipartisan group in the Senate Finance Committee.

Senate Passes House Version of Auto Defect Bill

The Senate has passed the House version of a bill to improve the motor vehicle defect-reporting system used by the National Highway Traffic Safety Administration to identifying safety-related defects and to initiate recalls.

Because the Senate passed the House version instead of its own version, insurers "dodged a bullet," said Barbara Levering of the American Insurance Association.

The Transportation Recall Enhancement, Accountability and Documentation Act now awaits President Clinton's signature. It calls for a study to see if it's feasible for insurers to give aggregate data to NHTSA that could be used to improve the highway safety administration's ability to identify safety defects.

The Senate version, S3059, raised concerns among the AIA and other insurance industry trade groups, because it would have given the Transportation Secretary the authority to issue regulations requiring insurers to report any data the Department of Transportation required.

Reporting data that is collected could have been problematic. For example, there was the potential insurers would have been required to report personally identifiable information, a breach of policyholder privacy.

The bill improves tire safety standards and consumer information; requires early notification of foreign actions; moves toward improved rollover testing; and improves recall procedures, David Snyder, AIA assistant general counsel, said in a statement.

Pension Association Protests Patients' Rights Bill

The Association of Private Pension and Welfare Plans is telling its members and Congress that the revised Norwood-Dingell patients' bill of rights is worse than the original because it could allow more lawsuits.

The Washington, D.C.-based association had the Groom Law Group, also in Washington, examine the liability provisions of the revised Norwood-Dingell draft, which the congressmen have described as a compromise. The House and Senate both passed their versions of the patients' bill of rights last fall, with the significant and dividing issue being patients' right to sue their health plans.

House members, led by Reps. Charlie Norwood (R-Ga.) and John D. Dingell (D-Mich.), are trying to reach an agreement by proposing revised legislation that addresses the concerns of Senate Republicans.

The Groom study found that the new federal liability created by this revised bill also applies to administrative actions by employers and health plans, not simply decisions on benefits coverage, said Paul Dennett, vice president for health policy with the association.