The application by petitioner for an order pursuant to General Obligations Law §5-1706, approving the transfer of structured settlement payment rights of Maurice Welch to the petitioner, is denied.

Under the terms of a settlement obtained on behalf of Maurice Welch on December 4, 1998, the infant compromise order directed a monthly payment of $1,625.00 to Mr. Welch commencing August 14, 2005, when he turned age 18, for life, guaranteed for a period of thirty (30) years.

Mr. Welch currently seeks to transfer two hundred seventeen (217) monthly payments of $625.00 each, beginning July 14, 2017 and ending on July 14, 2035. According to the disclosure statement annexed to petitioner's motion as Exhibit A, the aggregate amount of the payments to be transferred is $135,625.00. The discounted present value of the aggregate payments to be transferred is $74,716.60. The effective annual discount rate for this transaction is 17.03%. The gross amount payable to Mr. Welch is $12,750.00. In addition, petitioner is charging a compliance and administrative fee in the amount of $750.00 and a filing and "related expenses" fee in the amount of $1,500.00. After payment of said fees, the net amount payable to Mr. Welch is $10,500.00 [*2]

Mr. Welch submitted an affidavit stating that he is twenty (20) years old, he is single and has no minor children. He is currently unemployed but states that he receives an income from his annuity payments which he is not selling in their entirety. Mr. Welch asserts that he seeks to transfer the aforementioned structured settlement payments to pay off a $5,000 credit card debt and the remaining amount of $5,500 will be used to pay outstanding bills such as back rent, electric bills, cellular phone bills and his home telephone.

The Structured Settlement Protection Act (SSPA) codified under General Obligations Law , Title 17, was enacted in July of 2002 because of the concern that "...a growing number of factoring companies have used aggressive advertising, plus the allure of quick and easy cash, to induce settlement recipients to cash out future payments, often at substantial discounts, depriving victims and their families of the long-term financial security their structured settlements were designed to provide. Although transfers of structured settlements payments are generally prohibited by contract...factoring companies have built a rapidly expanding business around circumventing these prohibitions." (NY Spons. Memo., 2002 Ch. 537). A determination would be made by a Supreme Court judge as to whether the transfer is "in compliance with applicable law, that key terms have been disclosed, that the transfer meets a hardship standard, and that independent professional advice has been obtained." (NY Bill Jacket, 2002 A.B. 6936, Ch. 537). In 2004, the SSPA was amended in that the hardship requirement was "eliminated as a precondition to transfers and the requirement that disclosures be made at the front end' was added." (NY Spons. Memo., 2004 Ch. 480).

The procedural requirements that must be met for approval of a transfer are found under General Obligations Law §5-1705. The requirements are that a copy of the notice of petition and petition by order to show cause be served upon all interested parties at least twenty days before the time at which the petition is noticed to be heard, the petition must include a copy of the transfer agreement, a copy of the disclosure statement and proof of notice of that statement as well as a listing of each of the payee's dependents along with the dependents' age.

Pursuant to General Obligations Law §5-1706, the court must make the following findings before a transfer can be effectuated. These are that: "(a) the transfer complies with the requirements of this title; (b) the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependants; and whether the transaction, including the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount, are fair and reasonable. Provided the court makes the findings as outlined in this subdivision, there is no requirement for the court to find that an applicant is suffering from a hardship to approve the transfer of structured settlement payments under this subdivision; ( c) the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received such advice or knowingly waived such advice in writing; (d) the transfer does not contravene any applicable statute or the order of any court or other government authority; and (e) is written in plain language and in compliance with section 5-702 of this article." [*3]

The two most important components of the SSPA are whether or not the transaction, including the discount rate and the amount of fees and expenses, is fair and reasonable and whether the transaction is in the best interest of the payee. The trial courts have ruled on what is determined to be fair and reasonable and whether the transfer is in the best interest of the payee on a case by case basis viewing the totality of the circumstances. Matter of Settlement Capital Corp. v. Yates, 12 Misc 3d 1198(A) [2006].

Mr. Welch made a previous application to transfer structured settlement payments and same was granted by Judge Lucindo Suarez of Bronx Supreme Court in a decision and order dated September 27, 2007. Pursuant to that order, Mr. Welch transferred monthly payments in the amount of $828.00 beginning July 14, 2007 and ending June 14, 2017. The instant application does not state how much Mr. Welch received in exchange for transferring those payments or what he did with the money he received for transferring those payments. After said transfer, Mr. Welch was left with $797.00 per month which is his current monthly income.

Now, Mr. Welch seeks to transfer payments that he will receive starting in July of 2017 and ending in July of 2035 to pay off credit card debts and rental arrears as well as other bills he has incurred. However, Mr. Welch did not disclose how he spent the money he received from the transfer of payments he made less than a year ago. Moreover, it is evident that the prior transfer of funds affected his ability to pay his monthly expenses thereby causing him to incur the debt which he currently seeks to pay off with this transfer. However, this court finds that the instant application for the transfer of structured settlement payments is not in Mr. Welch's best interest because he is not employed and currently lives off of the money he receives from his monthly structured settlement payments. Therefore, reducing that monthly amount will cause him to continue to incur debt in the future and will necessitate him having to make future applications to transfer more of his funds.

Even if the transfer was in Mr. Welch's best interest, this court finds that the transaction herein is not fair and reasonable. Mr. Welch asserts in his affidavit that he sought independent professional advice, he has thoroughly considered the transaction and his alternatives and he still wishes to transfer the funds. However, the net amount Mr. Welch will receive in this transaction, $10,500 is a paltry amount considering he is transferring a total of $135,625. That amount is still extremely low even when taking into account that the discounted present value of the sum he is transferring is $74,716.60.

In the case at bar, the rate of transfer is 17.03%. According to the affidavit submitted by John Calamari, Executive Vice President and Chief Financial Officer of 321 Henderson Receivables Origination, LLC, that rate of transfer is within industry standards for these types of transfers and is comparable to major credit card rates. He asserts that the $12,750 Mr. Welch is receiving is the "present fair market value for this type of transaction." (Calamari Affidavit, para. 10). This court does not find the rate of 17.03% to be fair or reasonable when compared to other cases of this nature. Lower courts have found that discount rates of 15.46% (Matter of Settlement Funding of NY (Cunningham), 195 Misc 2d 721 [2003])and 18.621% (In re [*4]Settlement Capital Corp. for Approval of Transfer of Structured Settlement Payment Rights of "Y", 194 Misc 2d 711 [2003]), were unreasonable.

Moreover, this court does not consider the $1,500 that petitioner is charging Mr. Welch for "filing and related expenses" to be fair and reasonable, particularly since there is also a $750 charge for "compliance and administrative fees." (Disclosure Statement, Exhibit A). The paperwork submitted by the petitioner does not explain what "related expenses" are considered to be.

Accordingly, since this court finds that the proposed transfer is neither fair nor reasonable nor is it in the best interest of Mr. Welch, the motion for this court's approval of the proposed transfer of the structured settlement payments is denied.

A copy of this decision and order shall be attached to any future applications by Mr. Welch to transfer his structured settlement funds.

This constitutes the decision and order of this court.

Dated: September 12, 2008

J.S.C.