Consumer Law & Policy Blog

Do class actions deter unlawful conduct?

That is a big question -- maybe the question -- about aggregated litigation. (We would also want to know, among other things, whether aggregated litigation adequately compensates injured people.) Law prof Brian Fitzpatrick attempts to answer that question in his new article aptly titled Do Class Actions Deter Wrongdoing? Here is the abstract:

I and other scholars have long pointed to the deterrence virtue of the class action to justify its existence even when it was doubtful that it furthered its other purposes, such as compensation or litigation efficiency. In recent years, critics have argued that class actions may not offer even this virtue. Some argue that the entire theory of general deterrence is misguided for class actions and others argue that, whatever the theory, there is no empirical proof that class actions do what the theory says. In this article, I take up these critiques. I find that the theory of deterrence remains just as strong today as it was when it was introduced 50 years ago by the “classical” law and economics movement. Moreover, although there is not a great deal of empirical evidence to support the theory for class actions, there is some, it is uncontroverted, and it is consistent with reams and reams of empirical evidence in favor of deterrence for individual lawsuits. I conclude that the conventional view that the class action can be justified by the deterrence rationale alone remains sound.

More on talcum powder and alleged links to ovarian cancer

A week ago, I posted this about the largest jury verdict to date against talcum powder makers -- $417 million -- awarded to a woman who alleged that Johnson & Johnson's talc-containing baby powder caused her ovarian cancer. You may also be interested in this article by Laura McGinley. The thrust of McGinley's piece is that while results of scientific studies on a talc-ovarian cancer connection are mixed, most scientists believe that a link has yet to be shown. For instance, there's this statement from the National Cancer Institute: "The weight of evidence does not support an association between perineal talc exposure and an increased risk of ovarian cancer." And the Food and Drug Administration says it hasn't found a causal connection either, but that its research continues.

 

Greg Baer: The "Record Profit" Canard--And My Rebuttal

Here, at The Clearinghouse Blog. Excerpt (footnote omitted):

Recently, one hears opponents of regulatory reform arguing that there is no need for regulatory reform because banks are making "record profits."  The argument is quite puzzling, but we’ve heard it enough to think it deserved a quick response.

 

Just for starters, step back and think just how silly the “record profit” canard really is.  Suppose the government adopted a rule that every power plant had to be painted yellow, or that every car had to have a bumper on the roof, or that every restaurant had to include a pet bathroom.  All of those would be really dumb regulations, but all of those industries would remain profitable.  Indeed, they might even report record profits after those regulations were promulgated.  Does that mean that those regulations would then be vindicated, and constitute smart regulations? 

 

And here is my reply, in Politico's Morning Money:

 

BANK EARNINGS REACT - Via St. John's professor Jeff Sovern: "Greg Baer misses the mark when he criticizes regulatory reform opponents for saying reform is unnecessary because banks are making record profits. Supporters of the reduced regulation reflected in the Financial Choice Act claim the rules mandated by Dodd-Frank make it hard for banks to operate and are causing some to close.

"Dodd-Frank supporters retort that If banks are making record profits despite the supposedly onerous regulations, banks must be doing just fine. It is hard to reconcile claims that regulations are putting banks out of business with reports of record profits.

 

 

Pincus Rebuttal on the Value of Class Actions

by Jeff Sovern

Last week, we reported on a Law360 article by Gary Mason finding benefits to class actions. Mayer Brown's Andrew Pincus has responded to the Law360 piece, also on Law360.   Here's an excerpt (with footnotes omitted):

The critical question is whether class actions generally deliver relief to class members. The answer: They don’t.

* * *

individual civil cases settle much more frequently than class actions — an average of 67 percent settle according to one study,or three times as frequently as class actions, based on Mason’s data. That dramatic disparity by itself indicates that there is something seriously amiss in the class action system, because so many more cases are being filed that yield no benefit for class members. The fact that these cases consume judicial resources and still cost a substantial amount to litigate, yet yield nothing for class members, is highly relevant to any cost/benefit analysis of class actions.

* * *

[C]laims rates — to the extent they can be ascertained — are extremely low. (Not surprisingly, claims rates are rarely disclosed.) The typical claims rate in the Mayer Brown study was less than 10 percent. The CFPB study claims rate averaged 4 percent, meaning that 96 percent of the class did not file a claim and therefore received no compensation.

* * *

Mason ends with the bald assertion that “class actions send a message to corporations and deter them from engaging in unfair and deceptive business practices.” But that unsupported claim makes no sense: because cases that survive dismissal and class certification virtually always settle, the class action system doesn’t punish wrongdoing and exonerate the innocent. It imposes burdens on both — and therefore deters both lawful and unlawful conduct or, probably, is just chalked up as a cost of doing business unrelated to the merits of a business decision.

Some quick comments: it is interesting that Pincus agrees that class actions deter unlawful conduct.  There is some tension between first complaining that putative class actions settle less frequently than individual claims, and then complaining that class actions that are certified nearly always settle.  In addition, I don't think the bare fact that class actions that get past the certification typically settle tells us anything about whether class actions punish wrongdoing. I agree that it is desirable to increase claims rates. I wonder what Pincus thinks of class actions in which the money is automatically deposited in consumers' accounts without them having to make a claim. 

 

Court Grants Motion to Compel DreamHost to Obey Warrant, but Restricts Search Process and Use of Data

by Paul Alan Levy

In a decision issued late Thursday morning, DC Superior Court Chief Judge Robert Morin said that he was ready to order DreamHost to comply with the federal prosecutors’ scaled-down search warrant, but enunciated strict procedural restrictions that he said were intended to reflect a balance between allowing the Government to pursue a facially legitimate criminal investigation and protecting the free speech rights of innocent users of the web site who were engaged in protected political speech.  It appears that the precise terms of the order are still under discussion.  Still, I have grave qualms about the precedent for searching anti-Trump web sites set here at the outset of the Trump Administration.

WSJ: Consumer Watchdog to Scale Back Payday Rules

by Jeff Sovern

Here. Excerpt:

The Consumer Financial Protection Bureau, still under the leadership of an Obama-appointed director, is expected to scale back its new rule on small-dollar lending as it rushes to complete the regulation * * *

* * *

The rule is now expected to focus on short-term payday loans that are typically due in two weeks, or the borrower’s next payday, with annual interest rates of as much as 390%. To be excluded are high-cost installment loans lasting 45 days or longer.

* * *

People familiar with the matter said the rule is undergoing a peer review by other banking agencies, such as the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., with a deadline in early September.

* * *

At a later date, the CFPB may issue a separate rule to address the longer-term loan market, which requires more complex regulations and involves a wider range of lenders, including banks and credit unions.

I wonder if the leak about the new rule came from the OCC or FDIC. The OCC's leadership, in particular seems hostile to the CFPB's consumer protection mission under the new administration.

Ninth Circuit affirms cy pres-only settlement in In re Google Referrer Header Privacy Litigation

Before jumping into my first post, I wanted to quickly introduce myself. I'm Mike Landis, Litigation Director for U.S. PIRG. (Obligatory disclaimer: my posts express my individual views only and not those of U.S. PIRG.) I've been a reader of this blog for sometime, and I'm excited to now participate as a contributor. My goal is to add to the great updates, analysis, and insight on consumer law and policy that this blog is known for. You can follow me on Twitter at @MLandisPIRG. On to the post...

Recently, a Ninth Circuit panel affirmed the district court's order approving a cy pres-only settlement in In re Google Referrer Header Privacy Litigation, 15-15858. (The panel's opinion is available here.) Under the terms of the settlement, Google is to pay a total of $8.5 million. Of that amount, $3.2 million will go to attorney fees, administration costs, and incentive payments to the named plaintiffs. The remaining $5.3 million will be split between six nonprofits that work on internet privacy issues: AARP, Inc., the Berkman Center for Internet and Society at Harvard University, Carnegie Mellon University, the Illinois Institute of Technology Chicago-Kent College of Law Center for Information, Society and Policy, the Stanford Center for Internet and Society, and the World Privacy Forum.

First, the panel unanimously rejected the objectors' request that the appellate court "impose a mechanism that would permit a miniscule portion of the class to receive direct payments." According to the panel, the objectors had suggested that the court could "compensate an oversized class with a small settlement fund by random lottery distribution" or by offering "$5 to $10 per claimant" on the assumption that few class members will make claims. The panel "quickly disposed" of this argument by stating that appellate review is "not predicated simply on whether there may be 'possible' alternatives." Rather, the appellate court simply makes sure that the settlement approved by the district court is "fair, adequate, and free from collusion." The panel also "easily reject[ed]" the objectors' argument that, if the settlement fund is non-distributable, then a class action cannot be the superior means of adjudicating the dispute under Rule 23(b)(3). The panel said that "[t]he two concepts are not mutually exclusive" and, in fact, a class action makes most sense where "recovery on an individual basis would be dwarfed by the cost of litigating on an individual basis."

Perhaps the most interesting part of the opinion, and where the panel split 2-1, was with regard to the cy pres recipients themselves.

Chamber of Commerce Can't Kick Its Coffee Habit

Coming soon to a TV screen near you: An ad from the Chamber of Commerce exhorting viewers to tell their Senators to block the CFPB's arbitration rule so lawyers will stop bringing lawsuits over coffee. I kid you not.

Never mind that the rule applies to rip-offs by banks, credit card companies, and other financial institutions, not coffee shops. Even though the vilification of the hot coffee lawsuit was long ago debunked (here's the Reader's Digest version if you don't have much time!), the Chamber evidently still thinks all it has to do is mention coffee lawsuits and the public will mindlessly support any effort to eliminate the right to hold corporations legally accountable when they engage in financial fraud.

The ad's absurd series of non sequiturs (images of coffee cups followed by attacks on an "out-of-control government agency" illustrated by sinister footage of an office building--ooh, scary!) reaches its climax when the words "Takes away arbitration" appear on the screen, as if taking away arbitration were as bad as taking away our precious right to drink coffee. Somehow I doubt if most people have the same warm, fuzzy feelings about arbitration that they have about a good cup of joe. Let's hope not, anyway.

"Bargainista" Advises: Claim Your Class Action Settlement Funds

The "Bargainista" columnist for the on-line news site TCPalm.com, a USA Today affiliate focusing on Florida's Treasure Coast, commonly covers subjects such as the availability of "mooncakes" at Denny's on eclipse day, the supply of pretzels at the Wawa convenience store chain, and special deals available on "holidays" like National Fajitas Day, National Bowling Day, National Lipstick Day, and National Frozen Custard Day.

Today, columnist Kelly Tycko weighs in on what is arguably a more serious subject: How to submit claims for class action settlement funds. The column's title ("Want free money? Sign up for class action lawsuit settlements") made me a little apprehensive that the advice would be to try to game the system for some extra cash. I was pleasantly surprised to see that it consisted entirely of advice on how to make legitimate claims, including admonitions to be honest in submitting claims under penalty of perjury and advice to submit documentary proof with claims.

The column's bottom line: Consumers shouldn't ignore settlement notices, but should file claims when they qualify under a settlement. I can't argue with that. Bumping up the rates of legitimate claims can only enhance the effectiveness and reputation of consumer class actions.

I did note one bit of irony. The column points out that class settlements often involve substantial payouts and, as an example, mentions a settlement in a Telephone Consumer Protection Act case involving telemarketing calls allegedly made on behalf of Carnival, Royal Caribbean, and Norwegian cruise lines by Resort Marketing Group (the settlement website is here). When I first looked at the column on class settlements, I was treated to a little video ad for Viking Cruises, a competitor of the defendants in that case. That is some targeted advertising!

 

 

 

 

Under consent order with the CFPB, American Express ends its discriminatory credit practices in Puerto Rico and U.S. territories

As CFPB director Richard Cordray described it:

Consumer financial protections are not confined within the 50 states. American Express discriminated against consumers in Puerto Rico and the U.S. territories by providing them with less-favorable financial products and services. They have ceased this practice and are making consumers whole. In particular, because they self-reported the problem and fully cooperated with our investigation, no civil penalties are being assessed in this matter.

The agency describes its order this way:

The [CFPB] today took action against two American Express banking subsidiaries for discriminating against consumers in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories by providing them with credit and charge card terms that were inferior to those available in the 50 states. American Express also discriminated against certain consumers with Spanish-language preferences. Over the course of at least ten years, more than 200,000 consumers were harmed by American Express’ discriminatory practices, which included charging higher interest rates, imposing stricter credit cutoffs, and providing less debt forgiveness. American Express has paid approximately $95 million in consumer redress during the course of the Bureau’s review and American Express’ review, and today’s order requires it to pay at least another $1 million to fully compensate harmed consumers.

Read the consent order and the CFPB's press release.