Minnesota will become the only state in the nation to require the appointment of an outside attorney to advise judges on whether to approve the sale of structured settlement payments for anyone who appears to suffer from mental or cognitive impairments.

The change is coming through legislation approved unanimously Wednesday by the Minnesota Senate. The House passed the same bill last week by a vote of 121-4. The new law is expected to be signed by Gov. Tim Walz and go into effect Aug. 1.

The legislation cracks down on abuses documented by the Star Tribune involving accident victims who are persuaded to sell their future settlement payments for far less than they are worth to so-called factoring companies.

Advocates said Minnesota, after having some of the weakest oversight of such deals in the nation, will now offer broader consumer protections than almost every other state.

"We are light-years ahead of where the law was," said Ron Elwood, supervising attorney at Mid-Minnesota Legal Aid. "I think Minnesota's law is now among the best, if not the best, consumer protection law in this area in the country."

Each year, settlement purchasing companies persuade U.S. accident victims to sell an estimated $1 billion in future payments. On average, the companies keep 60% of the money, according to a Star Tribune analysis of more than 2,400 deals from seven states from 2000 to 2020. In some cases, people sold future payments for just pennies on the dollar.

Judges are required to review such transactions to see if they are in the best interests of accident victims, but the courts routinely approve these deals after short hearings at which no one questions the merits, records show.

In many cases, monthly settlement payments are the primary income for accident victims who are unable to work because of catastrophic, lifelong injuries.

Advocates said the legislation will have a huge impact on the market by giving judges the tools they need to protect vulnerable accident victims from entering into deals that could wipe out their financial security.

"It's huge for consumers," said Robyn Rowen, executive director of the Minnesota Insurance and Financial Services Council. "I think it will absolutely improve the deals that consumers are able to get, and I think it will hopefully prevent some of the predatory practices that were occurring in the marketplace'' and outlined by the Star Tribune.

In Minnesota, one in eight transactions involved a seller with documented mental health problems, including people institutionalized at the time they agreed to sell their payments or who struck deals shortly after they were released. Many of those sellers told the Star Tribune that they didn't understand what they were giving up in these transactions, including a car accident victim who sold more than $500,000 in future payments for just $12,001 in 2019.

No other state routinely requires the appointment of an independent advisor to protect the interests of a seller. Minnesota's judges also will be able to appoint an independent advisor on any case if they want an outside opinion on the sale. Those advisors will be paid by the factoring companies, with costs capped at $2,000 per case.

In Albuquerque, New Mexico, where judges have voluntarily used a similar advisory system involving guardians for several years, costs have ranged from $1,200 to $2,500 per case. Many Albuquerque deals have collapsed after accident victims met with a guardian or after a guardian recommended against a deal, court records show.

"The independent advisor will be able to say if a deal is not in a seller's best interest, even if that person wants to sell their payments," said Rep. Erin Koegel, D-Spring Lake Park, chief sponsor of the House bill. "That is a big win."

To win over the support of companies that buy structured settlement payments, advocates had to give up a provision that would have limited the profits companies can make on the deals. Representatives of the National Association of Settlement Purchasers refused to go along with the limit, saying a similar restriction in North Carolina killed the market for settlement purchases, according to several advocates who participated in negotiations over the bill.

"We did not allow the perfect to get in the way of the possible," said Joel Carlson, a lobbyist for the Minnesota Association for Justice. "This compromise is a vast improvement over the current situation."

Brian Dear, executive director of the trade group, declined to address the North Carolina issue, but voiced overall support for the Minnesota bill. "The legislation establishes robust judicial procedures to protect Minnesotans and provides the courts with the tools they need to determine whether a proposed transfer is in a person's best interests," he said in a statement.

The new law requires judges to consider a wide range of factors in determining whether a deal is truly in a seller's best interest, including their age, maturity level, and their overall financial situation. Companies will be barred from engaging in the kind of relentless marketing tactics that have enraged many settlement recipients, who say they have been awakened by telemarketers at all hours with offers to buy their payments.

Under the new law, companies will be barred from contacting any settlement recipient who opts out of solicitations. For those who agree to take sales calls, companies will not be able to contact them before 8 a.m. or after 9 p.m. Companies also will not be able to offer advances, gifts or other "inducements" to enter into a deal.

"The tactics some of these companies use to persuade people to sell their payments is borderline harassment," Koegel said. "We are going to prevent that from happening."

Under the new law, companies have to register with the state, but the job of enforcing the rules will fall on local judges, who will have the authority to revoke or suspend a company's registration, or bar it from pursuing more deals in Minnesota if the company has engaged in misleading advertising or other prohibited conduct.

"We have a lot of good companies currently doing it, but you always have the bad actor and we are going to address them," said Sen. Paul Utke, R-Park Rapids, chief sponsor of the Senate bill.

The new law also ends the practice of forum shopping, where structured-payments companies file cases far from the home of a customer to find the friendliest judge.