[Congressional Record Volume 144, Number 137 (Monday, October 5, 1998)]
[Senate]
[Pages S11499-S11500]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  STRUCTURED SETTLEMENT PROTECTION ACT

 Mr. BAUCUS. Mr. President, I am pleased to join today with 
Senator Chafee and a bipartisan group of our colleagues from the 
Finance Committee including Ms. Carol Mosley-Braun in introducing the 
Structured Settlement Protection Act.
  Companion legislation has been introduced in the House (H.R. 4314) by 
Representatives Clay Shaw and Pete Stark. The House legislation is co-
sponsored by a broad bipartisan group of Members of the House Ways and 
Means Committee.
  The Treasury Department supports this bipartisan legislation.
  I speak today as the original Senate sponsor of the structured 
settlement tax rules that Congress enacted in 1982. I rise because of 
my very grave concern that the recent emergence of structured 
settlement factoring transactions--in which factoring companies buy up 
the structured settlement payments from injured victims in return for a 
deeply-discounted lump sum--completely undermines what Congress 
intended when we enacted these structured settlement tax rules.
  In introducing the original 1982 legislation, I pointed to the 
concern over the premature dissipation of lump sum recoveries by 
seriously-injured victims and their families:

       In the past, these awards have typically been paid by 
     defendants to successful plaintiffs in the form of a single 
     payment settlement. This approach has proven unsatisfactory, 
     however, in many cases because it assumes that injured 
     parties will wisely manage large sums of money so as to 
     provide for their lifetime needs. In fact, many of these 
     successful litigants, particularly minors, have dissipated 
     their awards in a few years and are then without means of 
     support.--Congressional Record (daily ed.) 12/10/81, at 
     S15005.

  I introduced the original legislation to encourage structured 
settlements because they provide a better approach, as I said at the 
time: ``Periodic payment settlements, on the other hand, provide 
plaintiffs with a steady income over a long period of time and insulate 
them from pressures to squander their awards.'' (Id.)
  Thus, our focus in enacting these tax rules in sections 104(a)(2) and 
130 of the Internal Revenue Code was to encourage and govern the use of 
structured settlements in order to provide long-term financial security 
to seriously-injured victims and their families and to insulate them 
from pressures to squander their awards.
  Over the almost two decades since we enacted these tax rules, 
structured settlements have proven to be a very effective means of 
providing long-term financial protection to persons with serious, long-
term physical injuries through an assured stream of payments

[[Page S11500]]

designed to meet the victim's ongoing expenses for medical care, 
living, and family support. Structured settlements are voluntary 
agreements reached between the parties that are negotiated by counsel 
and tailored to meet the specific medical and living needs of the 
victim and his or her family, often with the aid of economic experts. 
This process may be overseen by the court, particularly in minor's 
cases. Often, the structured settlement payment stream is for the rest 
of the victim's life to ensure that future medical expenses and the 
family's basic living needs will be met and that the victim will not 
outlive his or her compensation.
  I now find that all of this careful planning and long-term financial 
security for the victim and his or her family can be unraveled in an 
instant by a factoring company offering quick cash at a steep discount. 
What happens next month or next year when the lump sum from the 
factoring company is gone, and the stream of payments for future 
financial support is no longer coming in? These structured settlement 
factoring transactions place the injured victim in the very predicament 
that the structured settlement was intended to avoid.
  Court records show that across the country factoring companies are 
buying up future structured settlement payments from persons who are 
quadriplegic, paraplegic, have traumatic brain injuries or other grave 
injuries. That is why the National Spinal Cord Injury Association and 
the American Association of Persons With Disabilities (AAPD) actively 
support the legislation we are introducing today. The National Spinal 
Cord Injury Association stated in a recent letter to Chairman Roth of 
the Finance Committee that the Spinal Cord Injury Association is 
``deeply concerned about the emergence of companies that purchase 
payments intended for disabled persons at drastic discount. This 
strikes at the heart of the security Congress intended when it created 
structured settlements.''
  As a long-time supporter of structured settlements and an architect 
of the Congressional policy embodied in the structured settlement tax 
rules, I cannot stand by as this structured settlement factoring 
problem continues to mushroom across the country, leaving injured 
victims without financial means for the future and forcing the injured 
victims onto the social safety net--precisely the result that we were 
seeking to avoid when we enacted the structured settlement tax rules.
  Accordingly, I am pleased to join with Senator Chafee in introducing 
the Structured Settlement Protection Act. The legislation would impose 
a substantial penalty tax on a factoring company that purchases 
structured settlement payments from an injured victim. There is ample 
precedent throughout the Internal Revenue Code, such as the tax-exempt 
organization area, for the use of penalties to discourage transactions 
that undermine existing provisions of the Code. I would stress that 
this is a penalty, not a tax increase--the factoring company only pays 
the penalty if it undertakes the factoring transaction that Congress is 
seeking to discourage because the transaction thwarts a clear 
Congressional policy. Under the Act, the imposition of the penalty 
would be subject to an exception for court-approved hardship cases to 
protect the limited instances of true hardship of the victim.
  I urge my colleagues that the time to act is now, to stem as quickly 
as possible these harsh consequences that structured settlement 
factoring transactions visit upon seriously-injured victims and their 
families.

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