On The Case

FTC’s comprehensive study finds median consumer class action claims rate is 9%

(Reuters) - The Federal Trade Commission has just published a staff report on what it believes to be the most comprehensive study ever conducted on consumers’ response to class action settlements. Its marquee finding, after collating data on 149 consumer class actions from seven different claims administrators: The median claims rate in these cases is 9%. The weighted mean claims rate, which takes into account the number of class members who received settlement notifications, is 4%.

Whether you regard those numbers as a sign that consumer class actions are delivering meaningful relief to class members or as proof that consumers don’t really care about cases purportedly litigated on their behalf probably depends on your role in the class action ecosystem.

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On its face, the FTC report’s median claims rate of 9% is higher than claims rates previously reported in the scant literature on consumer class action settlements. As the FTC recounts, the commission found only three previous studies of class action claims rates: a 2013 analysis of 40 consumer cases by Mayer Brown for the U.S. Chamber of Commerce; a 2015 report by the Consumer Financial Protection Bureau on 105 class actions involving financial products; and a 2015 paper in which law professor Brian Fitzpatrick of Vanderbilt and plaintiffs' lawyer Robert Gilbert examined consumers’ recoveries in 15 class actions against banks.

Mayer Brown found claims data on just five of the small-dollar cases in its study, with rates ranging from less than 1% to 12%. The CFPB reported a median claims rate of 8%. The Fitzpatrick study isn’t exactly on point because in all but two of the cases it examined, money was distributed to class members’ bank accounts without a claims process. The FTC study noted that when the commission administers a claims process to find consumers entitled to repayments from companies that have settled consumer fraud claims by the government, its claims rate varies from 5% to 20%. The 9% median class action claims rate falls within that range.

But as class action watchdog Ted Frank of the Hamilton Lincoln Law Institute pointed out in an email to me, there’s a crucial caveat to keep in mind about the FTC data on class action claims rates. The commission looked only at class actions in which at least some class members received direct notice of the settlement. (In about half of the cases in the FTC data set, direct notices, by mail or email, were supplemented by notices in online or traditional media.) But many small-dollar consumer cases, Frank said, no class members receive direct notices. The claims rate in those cases - based an internal study by the claims administrator KCC that was conducted in 2013 and revealed in 2014 in a class action involving Duracell batteries – is less than 1%.

Frank, who frequently represents class action objectors protesting class counsel fee requests, said the FTC study shows how the claims process can be engineered to boost or depress claims rates. The FTC found, for instance, that claims rates changed materially based on how class members are notified and whether they receive followup notifications. Frank said the data lends support to his group’s arguments that compensation for plaintiffs’ lawyers should be based not on the relief supposedly available to class members but on the class’ actual recovery.

Class action lawyer Jonathan Selbin of Lieff Cabraser Heimann & Bernstein actually agreed with Frank that the FTC data should push plaintiffs’ lawyers to improve claims rates by class members. The commission’s study strongly suggests that notification methods have a profound impact on claims rates. The FTC found, for instance, that the claims rate is highest – 16% median and 10% weighted average – when class members receive notification packets of information by mail. By contrast, the FTC found that class members who primarily receive notice by postcard file claims at a median rate of 6% – and those whose notice is primarily by email have a dismal median claims rate of 3%. Claims rates jump, the FTC found, when plaintiffs’ lawyers and claims administrators spell out in plain English how class members can receive compensation and when claims forms are included in notice packets and notification postcards.

The FTC study “reconfirms something every good class action lawyer (and notice/claims administrator) already knows and does – simplified claims forms/process and notice in plain English … work best,” Selbin said in an email. “Our job is to do everything we can to get notice out and received and claims made and approved.”

Georgetown law professor Brian Wolfman, who wrote about the FTC study at the Consumer Law and Policy Blog, also said the commission’s findings should spur plaintiffs lawyers to boost class members' participation. “I don’t think we should be satisfied with 9 percent,” he said in an interview. “I think we can do a lot better.” In particular, Wolfman said the FTC’s data showing very low response rates to email notifications is a vindication of warnings from class action notice expert Todd Hilsee that emails are no substitute for old-school notification packets sent by mail. And the commission’s finding that claims rates doubled when class members receive multiple notifications is proof, Wolfman said, that there are payoffs for the class when lawyers invest in followup notices – especially, he said, if those notices are written in plain English.

Wolfman made one other key point. The FTC went to a lot of trouble to amass data for its study, culling files supplied by claims administrators. But Wolfman said – and I heartily agree – that class actions claims data ought to be part of the docket in every class action settlement approved by a federal judge. By the time a class action comes before the court for final approval, class counsel and claims administrators have a good idea of how many class members have made claims. Yet most motions for final settlement approval do not disclose claims rates, and most judges don’t ask for the data.

As you may recall, the Northern District of California announced last year that it would begin requiring disclosure of that information before final approval, as well as additional post-approval accounting. Wolfman and some other law professors have been pushing the advisory committee on federal civil rules to formalize beefed-up class action disclosures in Rule 23 but have so far not succeeded.

The FTC’s results on claims rates may not be earth-shaking, but the study shows how data can inform the choices made by plaintiffs’ lawyers and claims administrators. Here’s hoping that the next time someone conducts analysis of class action claims, we find out that more class members are receiving the recovery they’re due.

The FTC has called for written comments on its report and will hold a public workshop on class actions in Washington, D.C. on Oct. 29.