INSIGHT: Surprising Results From FTC Study of Class Settlement Claims Response Rates

A recent data-driven study by the Federal Trade Commission sheds new light on how class action notice and claims procedures might be negotiated. Intriguingly, the study finds that actual class member behavior differs from what practitioners might predict.

Many class action cases resolve with a settlement that requires class members to submit a claim for payment. The rule governing approval of most class action settlements (Fed. R. Civ. P. 23(e)) also requires that class members be given notice of the settlement approval hearing, as well as the opportunity to either object to the settlement or request to be excluded from the class (opt out).

Thus, when settlements are negotiated, a great deal of attention often is paid to the manner and form of notice, as well as the mechanics of the claims process. Amendments to the rule implemented in 2018 expressly approve use of electronic communication (for example, email or social media) for the notice process, and so the details of electronic notice likewise are increasingly the subject of detailed settlement negotiations. See Fed. R. Civ. P. 23(c)(2)(B).

Dollar Amounts in Email Subject Lines Aren’t Trusted

A frequent concern is what percentage of class members claim against the settlement fund. To that end, class counsel typically request that settlement notices greatly emphasize the amount of money that claimants may receive.

For example, they might want the subject line of a notice email to include advertising-inspired language, such as, “Important Settlement Notice—You Could Receive $100—Act Now!” Surprisingly, the FTC data shows that this kind of urgent language may cause consumers to be suspicious, and could result in lower rates of consumers’ opening the notice email and submitting a claim.

Defense counsel take care to design programs that do not encourage fraudulent claims. To that end, they often attempt to negotiate that the claim form include language where the claimant verifies “under penalty of perjury” that the information in the claim form is true, in hopes that requiring this verification will discourage fraudsters from submitting claims.

In settlement negotiations, however, class counsel often oppose this language, on the theory that this legalese may scare legitimate claimants away from making a claim. Surprisingly, the FTC data suggests that neither side is correct, in that including “under penalty of perjury” language probably discourages neither valid claims nor fraudulent ones.

Including this language results in a very small, but statistically insignificant, reduction in the claim filing rate. Similar but softer language (“to the best of my knowledge”) also has no statistically significant impact on the claim filing rate.

Other factors also lacked any statistically-significant impact on claim filing rates, such as the amount of consumer personal identifying information required to be submitted on the claim form or the length of the claim form. Thus, to the extent defendants require this information to verify claims and prevent fraud, this can be justified on the grounds that requiring the information will not materially suppress legitimate claims.

Many Settlement Checks Never Get Cashed

Another surprising result was the rate at which settlement checks were cashed. In cases where payments were sent directly to class members, without any requirement to file a claim form, only 55% of checks were cashed. Even in settlements where claims were required, only 77% of checks were cashed. The FTC noted, however, that the amount of the check was the most important factor on check-cashing rates. For payments in the $50-$100 range, 90% of checks were cashed.

Still, the low check-cashing rate in direct-payment cases supports the rationales for requiring class members to submit claims: to ensure that appropriate individuals receive relief; to prevent fraudulent claims; and to avoid the administrative expense of multiple distribution attempts to non-responding class members.

Regarding manner of notice, mailed notice in this study performed better than emailed notice. Likewise sending out multiple rounds of notice obtained a higher response than sending out one round of notice.

One factor that had a very strong, statistically-significant impact on claim filing rates was the use of plain English drafting techniques when preparing the class notice and the claim form.

The FTC found that claims filing rates could be increased by more than 10%, just by using precise, simple language to explain the claims process and what a class member could receive by submitting a claim. The impact of plain English drafting greatly outweighed all other factors.

Accordingly, the study tends to vindicate the Federal Judicial Center’s longstanding policy of encouraging plain English drafting by distributing sample forms for various kinds of cases.

The FTC emphasized that its findings were based on a small data set, and cautioned readers about applying its findings to any particular settlement, because the details of the underlying case and class may have the most important impact on what kind of notice and/or claims process is appropriate.

Nevertheless, its data is of great use to practitioners, both in terms of core settlement design and what features do or don’t merit extensive negotiation.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Stephen J. Newman is a partner in the Financial Services Litigation, Regulation and Enforcement group at Stroock & Stroock & Lavan LLP. He handles class action defense and other representative litigation, including multidistrict cases and proceedings launched by government officials on behalf of the general public.