As part of its “Class Action Fairness Project,” the FTC is seeking comment on its plans to use an Internet panel to conduct research on class action notices.  According to the FTC’s Federal Register notice, the project “strives to protect injured consumers from settlements that provide them with little to no benefit and to protect businesses from the incentives such settlements may create for the filing of frivolous lawsuits.”  Actions taken by the FTC as part of the project include monitoring class actions and filing amicus briefs or intervening in appropriate cases; coordinating with state, federal, and private groups on important class action issues; and monitoring the progress of legislation and class action rule changes.  Comments in response to the FTC’s notice will be due on or before August 17, 2017.

In 2015, the FTC announced its plans to study whether consumers receiving class action notices understand the process and implications for opting out of a settlement, the process for participating in a settlement, and the implications for doing nothing (Notice Study).  It also announced that it planned to conduct a study to determine what factors influence a consumer’s decision to participate in a class action settlement, opt out of a class action settlement, or object to the settlement (Deciding Factors Study).

In the new notice, the FTC states that as part of the Notice Study, it proposes to conduct an Internet-based consumer research study to explore consumer perceptions of class action notices.  Using notices sent to class members in various nationwide class action settlements and “streamlined versions designed by the FTC staff,” the study will focus on notices sent to individual consumers via email and will examine whether variables such as the sender’s email address and subject line impact a consumer’s perception of and willingness to open an email notice.  The FTC plans to send an Internet questionnaire to participants drawn from an Internet panel with nationwide coverage maintained by a consumer research firm that operates the panel.

While the FTC plans to assess consumer comprehension of the options conveyed by the notice, including the process for participating in the settlement and the implications of consumer choice, in the Notice Study, it no longer plans to examine whether consumers understood the implications of opting out of a settlement,  According to the FTC, it has determined that the opt-out issue is more appropriately addressed in the Deciding Factors Study.

In November 2015, the FTC issued orders to eight claims administrators requiring them to provide information on their procedures for notifying class members about settlements and the response rates for various methods of notification.  While the FTC notes that it has used data obtained through the orders to inform the Notice Study and that such data will also be used to inform its Deciding Factors Study, it does not provide any information about what such data revealed.  We had commented that the response rate data provided to the FTC by the claims administrators was expected to show extremely low response rates (i.e., less than 5 percent) in most cases, providing support for critics of the CFPB’s proposed rule to prohibit providers of certain consumer financial products and services from using a pre-dispute arbitration agreement that contains a class action waiver.

That rule has now been finalized and like the CFPB’s proposed rule, is based on the CFPB’s view that consumers obtain more meaningful relief through class actions than in arbitration.  Low average response rates would be further evidence that the CFPB’s premise is incorrect and arbitration is more beneficial to consumers than class actions.






On February 9, 2017, the House Judiciary Committee by a vote of 19-12 passed the Fairness in Class Action Litigation Act of 2017, a bill that would make significant changes to the procedures for class actions in federal court.  The bill’s passage by the House and Senate with strong Republican support would seem to augur well for the adoption of a joint resolution of disapproval under the Congressional Review Act to nullify a final arbitration rule should one be issued by the CFPB.

Intended to combat abuses in class action and mass tort litigation, the bill includes provisions that would:

  • Prohibit a court from certifying a class action seeking monetary relief for personal injury or economic loss unless “the party seeking to maintain such class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.”
  • Prohibit a court from certifying a class action “in which any proposed class representative or named plaintiff is a relative of, is a present or former employee of, is a present or former client of (other than with respect to the class action), or has any contractual relationship with (other than with respect to the class action) class counsel.
  • Prohibit a court from certifying a class action seeking monetary relief unless the class is defined with reference to objective criteria and the party seeking to maintain the class action “affirmatively demonstrates that there is a reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.”
  • Prohibit payment of attorneys’ fees in a class action seeking monetary relief until the distribution of monetary recovery to class members has been completed and limit the portion of an attorneys’ fee award to class counsel that is attributed to the monetary recovery to a reasonable percentage of any payments directly distributed to and received by class members, with the attorneys’ fee award in no event to exceed the total amount of money directly distributed to and received by class members.
  • Allow appeals to a circuit court from an order granting or denying class action certification under Rule 23 of the Federal Rules of Civil Procedure

A group of public interest and consumer advocacy groups have sent a letter to Representative Bob Goodlatte, Chairman of the House Judiciary Committee, and Representative John Conyers, Jr., the Ranking Member, expressing their strongly opposition to the bill.  In their letter, the groups reference the requirement that “each proposed class member suffered the same type and scope of injury as the named class representative or representatives” for a court to certify a class action and state that “[t]his alone would sound the death knell for most class actions.”

The FTC has announced that to study the effectiveness of various class action settlement notice programs, it has issued orders to eight claims administrators requiring them to provide information on their procedures for notifying class members about settlements and the response rates for various methods of notification.

It is anticipated that such information will demonstrate that only a very small fraction of class members who must file claims to participate in a settlement fund actually do so.  Such information would provide support for critics of the CFPB’s proposed arbitration rule and serve as further evidence that the CFPB’s premise that consumers obtain more meaningful relief through class actions than in arbitration is incorrect.

The CFPB’s own arbitration study included data showing that even class members entitled to benefits frequently fail to obtain them.  The study found that in “claims made” class action settlements, the unweighted average claims rate was 21 percent and median was 8 percent.  The weighted average claim rate was only 4 percent.  Moreover, claims rates fell nearly 90 percent if documentary proof was required.  Presumably, the funds not distributed to the class members either reverted to the company or were used for a cy pres distribution

For more information on the FTC’s announcement, see our legal alert.

Today, the CFPB announced at a field hearing in Denver, Colorado that it is considering proposing rules that would prohibit consumer financial services companies from using class action waivers in consumer arbitration clauses.   The CFPB has published an outline of its proposals in preparation for convening a Small Business Review Panel to gather feedback from small industry stakeholders.  This is the first step in the process of a potential rulemaking on this issue.  Alan Kaplinsky testified at the CFPB’s invitation to present the financial services industry’s position on the proposed rules.  We have issued an E-alert on this important development which contains a link to the CFPB’s outline of its proposals.

We have previously blogged about the ongoing arbitration study which the CFPB is conducting under Section 1028 of Dodd-Frank.

Yesterday, Will Wade-Gery (who is managing the study for the CFPB) spoke at the 19th Annual Consumer Financial Services Institute (which I co-chair) in Chicago. Mr Wade-Gery provided an update regarding the status of the study. He indicated that the Bureau is researching the following matters: (1) back-end outcomes of consumer financial services lawsuits in court (including class actions) and arbitrations; (2) transaction costs and consumer benefits of class actions; (3) impact on prices for goods and services of class actions and arbitrations; and (4) the relationship between private and public enforcement of consumer financial services laws. He also said that the study will be completed by the end of the year.

Following up on our earlier post, we have now had a chance to review the CFPB’s 168-page report containing some preliminary results of its consumer arbitration study.  Our responses to some of the Bureau’s specific findings can be accessed here.  While we are encouraged that the Bureau recognizes the importance of studying the relative benefits to consumers of individual arbitration when compared with class action litigation, we are concerned that the Bureau has already made up its mind on the need for subsequent rulemaking.  Reading between the lines of the report, the Bureau seems to be setting the stage for a rulemaking that will likely not be favorable to the industry.  While they claim not to be prejudging the ultimate outcome, their findings seem to be designed to support a conclusion that arbitration is inhibiting consumers from vindicating their rights and that class actions are necessary.  That is certainly how the consumerists are viewing things at this point.

Notably, the industry has countered with data of its own.  A lengthy report released on December 11 by an affiliate of the U.S. Chamber of Commerce sets forth “strong evidence that class actions provide far less benefit to individual class members than proponents of class actions assert.”  It concludes that the vast majority of the class actions it studied “produced no benefits to most members of the putative class” but did enrich the attorneys.  The Bureau would be well advised to take this data into account in addition to its own.

Follow Alan on Twitter at @AlanKaplinsky