Posts Tagged ‘consumer advocate’

Editor’s Note: The following guest post was authored by Sara Collins, contributor to the consumer finance website, NerdWallet.  The views expressed in Sara’s article are her own.  Although those of us who tend to represent defendants in consumer class actions may not agree with all of Sara’s views on the benefits of class actions, we can certainly learn something from reading a consumer advocate’s views on the subject.  The article also provides an easy-to-follow primer on how class actions work.  Many thanks to Sara for her contribution. 

Class Actions – Do They Actually Help Consumers? 

By Sara Collins

Consumers in the United States are sometimes victims of bad business behavior. These behaviors cover a huge range of bad acts, particularly in the field of securities. Class actions allow consumers to band together and fight against bad business. As such, they have a number of benefits for consumers and are quite helpful in evening the corporation versus consumer playing field.

What are Consumer Class Actions?

A consumer class action is simply a lawsuit which takes place in a federal or state court. The case is brought by one or a small handful of individuals, acting as representatives for a larger group of consumers, known as the class. Typically the case is seeking damages on behalf of the named individuals in addition to the entire class.

Why is a Consumer Class Action Necessary?

Traditionally, class actions are used to combine small-dollar claims for a large number of people. One small claim is generally too small for a cost-effective suit. Consumer class actions offer a helpful alternative, justifying the litigation expenses and immensely improving the consumer’s odds of success, particularly when it comes to larger corporations.

How do Consumer Class Actions Work?

When a class action is first brought, the court initially decides whether it is a proper class action. This is a process known as class certification. The parties then work towards a trial, though settlement negotiations can take place at any point.  If the parties decide to settle the case, the court must approve the settlement and then order notice given to class action members.

Do Class Actions Work?

They definitely do. Billions of dollars are given back to the public every year which come from consumer class actions. In most cases, the money is given directly to the victims of the suit, rather than going into the hands of the government, lawyers or other non-consumers.

What Long-Term Effects do Consumer Class Actions Cause?

Class actions help to make bad business practices unprofitable. Class actions aggregate the power of isolated consumers, allowing class actions to compete against corporate behemoths. It levels the playing field, forcing businesses to operate in honest and trustworthy ways.  Markets in other countries where class actions are not allowed often suffer from corporate abuses like stock manipulation, insider trading and other problems.

Do Lawyers Benefit Excessively From Consumer Class Actions?

One argument used by businesses to protest the prevalence of consumer class actions is to claim that the lawyers benefit excessively from the cases. In fact, attorney fees in class action cases average just between 20 and 30 percent of the amount recovered. In stark comparison, personal injury lawyers typically reap 35 to 50 percent of their case winnings. Clearly businesses are using false arguments in an attempt to eliminate class actions and thus damages sought against them.

What is the Class Action Fairness Act of 2005?

The Class Action Fairness Act of 2005 (CAFA) was enacted by Congress in order to curb abuse of class action suits in state courts. Evidence showed that many class actions were being filed which benefited the counsel, rather than the consumers. Additionally, many cases were filed in courts which showed prejudice against business defendants, a problematic issue.

CAFA was enacted to extend federal jurisdiction to these state courts in order to diminish such abuses. CAFA has had a mild success and while most benefits are for businesses, some benefits are extended to consumers. Primarily, the legislation limits the monetary benefits for the attorneys. This ensures that money won in settlements goes to the members of the class, rather than the plaintiff counsel.

Consumer class actions are needed to ensure the financial safety of consumers, particularly in the realm of securities. Class actions allow consumers to band together, combining resources in order to sue a corporation as a singular entity. In turn, all consumers reap the benefits of the settlement, helping to prevent future bad behavior from the corporation in question. Class actions undoubtedly have a positive effect on the world of consumers and it is vital they stay legal for the foreseeable future.

Sara Collins is a writer for NerdWallet, a personal finance site dedicated to helping consumers learn about new ways to save money.

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Washington Post columnist has David Ignatius published a great op-ed last week regarding the downfalls of high-profile plaintiffs’ class action lawyers Melvyn Weiss and Dickie Scruggs.  The column appears in the June 5 edition of the Post under the title Reining in the Kings of Tort and in the June 6 edition of the Indianapolis Star under the title The Case of the Runaway Class Action Lawyers.  Mr. Ignatius points out that the recent bribery, illegal kickback, and other scandals involving class action lawyers are tarnishing an image of plaintiffs’ lawyers as the “good guys” fighting for the common man against corporate greed and corruption.  He analyzes the possible motivations underlying these scandals and their impact on popular myths about class action lawyers as champions of the people created by authors like John Grisham and the works of consumer advocates like Ralph Nader.  He observes that men like Weiss and Scruggs were probably not motivated by greed–they both had more money than they could spend.  More likely, they became so zealous in their belief that they were protecting the interests people who had been the victims of harm that they began to “cut corners.”  The end justified the means. 

Scandals like those involving Weiss and Scruggs and abuses of trust of other so-called consumer advocates like former New York Attorney General and Governor Eliot Spitzer don’t mean that all plaintiffs’ lawyers and consumer advocates are greedy, unethical egomaniacs (see my earlier commentary here).  However, they do expose over-simplistic popular conceptions of who is a hero and who is a villain.  As important as recognizing that plaintiffs’ class action lawyers are not all heroes is the recognition that not all corporations are out to exploit, defraud, or otherwise harm the public.  Just as plaintiffs’ class action lawyers are human beings with real human flaws, large corporations are run by human beings with real human compassion.  Hopefully it doesn’t take reading Mr. Ignatius’s column for most people to appreciate those realities, but his column does serve as an important reminder.  Real life is not like a John Grisham novel.

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