Analyzing Class-Action Settlements

Many in the industry are still upset from recent attacks against what is viewed as a double-standard in the financial services industry, where companies can sue consumers for not paying their debts, but consumers – in many cases – are forced to file for arbitration instead of being able to file a lawsuit if a company has done something wrong. The main reason for this is that by using arbitration, companies avoid the risk of having a lawsuit become a class-action lawsuit, which would carry much higher penalties.

But there have been a lot of settlements recently that show just how toothless class-action settlements are, at least in the debt collection world. For example, a proposed settlement in the case of Graff v. United Collection Bureau Inc., a class-action lawsuit filed when a consumer sued because he received a voicemail message from UCB which did not identify itself as a debt collector nor did it identify the reason for the voicemail as an attempt to collect a debt. The suit included more than 560,000 class members. The proposed settlement is for a total of about $470,000, which sounds like a lot of money, until you read the details of the settlement to see that only $2,500 of that money is going to any of the members of the class – the plaintiff who brought the case. The defendant will make a $40,000 payment to the National Consumer Law Center (the amount is equal to 1% of UCB’s net worth), $250,000 will be put toward administrative costs, and $175,000 will be paid to the plaintiff’s lawyers. That’s it.

And this is not an outlier. For many class-action settlements, this is the norm. reached out to several attorneys who represent collection agencies in these kinds of suits and asked to see examples of settlements. Of the five settlements reviewed by, the members of all the classes — more than 110,000 in total — received $9,500. Meanwhile, the fees that were paid to the plaintiffs’ attorneys totaled $412,200.

It is easy for a publication like The New York Times or ProPublica to stand up and try to defend consumers and paint collection agencies, the financial services industry, and big business as bullies out to squeeze every last coin from the pockets of Joe Consumer, but the reality is much different. In just one random sampling of settlements, the amount paid to attorneys was more than 40 times higher than the amounts paid to those people who had been wronged. So, at the end of the day, who is to blame?

Sure, this is a sampling of cases from industry lawyers, so this is by no means a scientific analysis of class-action settlements. But the number don’t lie. There is only one group of people who prefer class-action lawsuits: plaintiffs’ attorneys. The legal system is skewed to create this dynamic. Plaintiffs’ attorneys shy away from single cases involving FDCPA violations or TCPA violations because the statutory damages are not high enough – there is not enough money to be made. It’s not worth the time and effort of attorneys to sue a collection agency for a single violation. Consumers often do not know whether a law has been broken or what to do about it and they can’t find a lawyer to take their case unless there are more people who have been similarly wronged. Defendants don’t want to have to pay for their lawyers and the lawyers on the other side, too. Mandatory arbitration is not as sexy as a class-action lawsuit, but it offers consumers the chance to make more money than from a class-action lawsuit.

So, if you’re a collection agency, what is the takeaway from all of this? Most collection agencies have never been sued. Maybe this provides more of an incentive to make sure that never happens.


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