Study: Class Actions Benefit Lawyers, Not Consumers

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December 11, 2013

A new report from the Institute for Legal Reform found that consumers who participate in class actions recover little or nothing as a result of the litigation. Mayer Brown researchers concluded that, in more than half of proposed class actions filed, the class members actually receive nothing.

The researchers looked at 148 consumer class actions, and found that none proceeded to trial.

Dan Fisher explains in Forbes:

Not a single case went to trial, illustrating the reason plaintiff lawyers love the class-action system so much. Once a judge certifies a case as an action on behalf of thousands or millions of consumers, the stakes are usually too high for companies to consider anything other than settling. While lawyers voluntarily dismiss some weak cases and judges dismiss others, odds are lawyers get paid something for each of them. Like a union boss cutting a deal to keep his members off of a job site, the class-action lawyer is not above dropping his case in exchange for a fee.

The real beneficiaries of such suits are the lawyers, continues Fisher:

When consumer class actions do settle, lawyers usually negotiate a deal that pays them and their named plaintiffs well, but deliver little to nothing to their other clients. The most common tool is a “claims made” settlement, under which everybody who supposedly lost money because of a company’s chicanery is bound by the terms of the settlement, but must make individual claims to be paid. Lawyers on both sides know almost no one will take the time to fill out paperwork for a 50-cent settlement check; defense attorneys count on this when calculating the ultimate cost of a settlement.

The Consumer Financial Protection Bureau is considering banning class action waivers in contracts. The waivers, upheld by the Supreme Court, move complaints to arbitration, which has been shown to be faster, simpler, and less costly for consumers.