Creating a government-run website to publicize and legitimize class settlements could go a long way towards increasing the amount of money that actually makes it into the hands of class members. That was the general consensus among speakers at a Federal Trade Commission workshop on how to improve claims rates in consumer class actions.
There has long been anecdotal evidence that consumer class actions often have claims rates under 10%. Now the FTC has backed that up with what Vanderbilt Law Professor Brian T. Fitzpatrick called “the best study of claims rates by far that has ever been done.”
In the 149 direct-notice settlements in the study, 9% of class members who received notice made claims.
The study found that sending multiple rounds of notice, describing the benefits in plain English, and using postcards with detachable claim forms result in higher claims rates.
The FTC said it wants to open a discussion on how to further improve these numbers.
Plaintiffs’ attorney Hassan A. Zavareei of Tycko & Zavareei LLP in Washington cautioned that equating notice with take rates may be problematic. Some people get notice and don’t care or oppose class actions or don’t feel wronged, he said.
Perfect notice to 100% of class members may not mean there will be a 100% claims rate, but that doesn’t mean notice was ineffective, he said.
But that’s why it’s critical to prove to the court that you reached as many class members as possible and gave them the chance to respond, notice expert Todd B. Hilsee of The Hilsee Group LLC in Ocean City, N.J., said.
The most novel proposal came from Vanderbilt Law Professor Amanda M. Rose. She’s working on a paper suggesting the creation of a government agency that would run a centralized website with information on all active class settlements.
The agency would send notice, which could improve claims rates because consumers may be more likely to trust mail or email coming from a government sender, she said.
Plaintiffs’ attorney Elizabeth Cabraser agreed that centralization makes sense, but worries that putting the settlement process in the hands of the government could add expense and delay. There is already a dependable source of funding for notice programs—the parties, she said.
Instead she suggested that having the courts put settlement information on their individual websites or a centralized site would be cheap and improve consumer confidence. Cabraser is a partner at Lieff Cabraser Heimann & Bernstein LLP in San Francisco.
Beth Chun, of the Texas attorney general’s consumer protection division, pushed back on the argument that having mail come from a government source will make it seem trustworthy.
Government impostor scams are becoming more prevalent, she said. Her office warns consumers about these scams, but those warnings make them skeptical of legitimate notices, she said.
Magistrate Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California also cautioned that making more settlement information public can make it easier for fraudsters to use it to spoof emails. The right amount of transparency is a delicate balance, she said.
The study has been criticized for only including settlements where notice could be sent directly to at least some of the class members.
FTC economist Shiva Koohi explained that not many settlements use only publication-only notice anymore because there are more ways to track consumer purchases. When they do, it’s difficult to create metrics for the scope of the notice and different forms of media it can cover, she said.
There’s also the problem that the exact size of the class isn’t always known in those cases, so calculating the claims rate is tricky, she said.
Adding publication and social media into the mix is useful to augment direct notice, Cabraser said. Notice should be published the same places the company advertises its products—they know their market, she said.
She also asks defendants to post links to the settlement website on their websites because people often go to the company’s page when they hear about a settlement.
But defense attorney Brian Perryman of Drinker Biddle & Reath LLP in Washington said clients may not want to use their marketing functions to notify class members. “It’s a bad look for the company,” he said.
The most important part is knowing and understanding who the class members are and what motivates them, Cabraser said. Instead of notice strategies, she likes to call them “communication and motivation campaigns,” she said.
Lessons From FTC
There may be something to learn from how the FTC distributes funds from its consumer enforcement actions, Nicole Christ, who heads the agency’s redress program, said.
It primarily does direct payments, avoiding claims processes unless there’s no other option, she said.
It also takes additional steps to get money to people who don’t cash their checks. That may mean remailing checks if staff can find a new address for the recipient, or sending a second check to the same address, which may increase the likelihood it will be cashed. If there are leftover funds, the agency does a second round of payments to class members who cashed checks, Christ said.
The FTC has even used email addresses to directly deposit funds into consumers’ PayPal accounts.
Fitzpatrick commended the FTC for being on the forefront of this approach, which he has advocated for. Even if consumers don’t have a PayPal account, they receive an email explaining that the money is waiting there for them and how to create an account, he said.
The event was held Oct. 29 in Washington.