High Cost, Little Compensation, No Harm to Deter: New Evidence on Class Actions Under Federal Consumer Protection Statutes

51 Pages Posted: 9 May 2016 Last revised: 7 Sep 2016

See all articles by Jason Scott Johnston

Jason Scott Johnston

University of Virginia School of Law; PERC - Property and Environment Research Center

Date Written: May 9, 2016

Abstract

Working from a sample of all consumer class actions filed in the Northern District of Illinois over the period 2010-2012 (totaling 510), this paper reports and analyzes data on class actions under four federal consumer protection statutes, the Electronic Funds Transfer Act (EFTA) the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), and the Telephone Consumer Protection Act (TCPA). Even coding all TCPA cases as alleging actual harm to the named plaintiff, over half the cases in the sample analyzed here seek statutory damages without an allegation of harm to the plaintiff. For most case types, only 15 percent or less of the class receive compensation, and the aggregate compensation paid to the class is far less than the stated or nominal class settlement fund amount. Because courts award attorney fees based on the nominal settlement amount, attorney fees are a very large fraction of the amount paid to the class and for some case types attorney fees average 300-400 percent of the amount paid to the class. The findings of this article have the following implications for class actions under federal consumer protection statutes: i) due to statutory damage provisions, there are no “small dollar” filings under such statutes; ii) such cases are never tried, rarely generate binding legal precedent and may well be individually viable; iii) with low class compensation rates and attorney fees to class counsel that often dwarf total class compensation, such class actions are both highly ineffective and inefficient; iv) statutory damages provisions with no requirement to even plead harm incentivize class counsel to pursue claims where there is no harm to compensate or deter, and even cases with allegations of harm (as under the TCPA) may actually involve no harm as courts have created a presumption of harm (as in presuming the lack of consent under the TCPA).

Suggested Citation

Johnston, Jason Scott, High Cost, Little Compensation, No Harm to Deter: New Evidence on Class Actions Under Federal Consumer Protection Statutes (May 9, 2016). Virginia Law and Economics Research Paper No. 2016-12; Virginia Public Law and Legal Theory Research Paper No. 2016-33. Available at SSRN: https://ssrn.com/abstract=2777618

Jason Scott Johnston (Contact Author)

University of Virginia School of Law ( email )

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