The New Class Action Risks for 2016 in Consumer Financial Services. Wednesday, February 10, :00 1:15 p.m. ET

Transcription

1 The New Class Action Risks for 2016 in Consumer Financial Services Wednesday, February 10, :00 1:15 p.m. ET

2 Introductions Anthony M. Sharett Partner, Columbus Co-leader of BakerHostetler s national Financial Services Industry team Patrick T. Lewis Partner, Cleveland

3 CFPB Rulemaking Anthony M. Sharett Partner & co-leader of the Financial Services Industry team, Columbus

4 CFPB Spurred Litigation And Class Actions Dodd-Frank Wall Street Reform and Consumer Protection Act Under 12 U.S.C. 5512, Congress granted the CFPB specific rulemaking authority over covered persons as well as enumerated consumer protection laws. Covered person means any person, or that person s affiliate, like a service provider, that engages in offering or providing a consumer financial product or service. (12 USC 5481(6).)

5 CFPB Spurred Litigation And Class Actions CFPB enforcement agency over almost all consumer statutes involving financial services companies Enforcement and Supervisory Agency over TCPA, FCRA, FDCPA, TILA, RESPA (Alphabet Soup)

6 CFPB Spurred Litigation And Class Actions For FDCPA cases in 2015, most corporate defendants were complained about to the CFPB The vast majority of consumer class actions filed in 2015 were for FDCPA, TCPA and FCRA claims Statistics provided by Web Recon LLC

7 CFPB Spurred Litigation And Class Actions At least 40% of consumer litigation plaintiffs sued at least once before under consumer litigation statutes

8 CFPB Spurred Litigation And Class Actions CFPB Proposed FDCPA Rule Advanced Notice of Proposed Rulemaking November 2013, still no final rule CFPB will likely regulate first party collectors Rule will likely restrict debt collection activities Rule will focus on new communication technologies Rule will likely lead to increased class litigation

9 CFPB Know Before You Owe TRID Rule and Class Action Risks Dodd Frank Act required integration of mortgage disclosures required by RESPA and TILA Replaced GFE with Loan Estimate Replaced TIL with Closing Disclosure

10 CFPB Know Before You Owe TRID Rule and Class Action Risks Rule designed to simplify lending docs for consumers Clarify costs associated with a mortgage Provide consumers with ability to shop around for mortgage loans

11 CFPB Know Before You Owe TRID Rule and Class Action Risks Rule adds several technical obligations on lender Rule adds several mandated redisclosures for mistakes/inaccuracies Rule modifies definition of application

12 CFPB Know Before You Owe TRID Rule and Class Action Risks Compliance burden on lenders/banks compliance professionals Litigation claims could challenge whether disclosures accurate Litigation claims could arise challenging timing of disclosures

13 CFPB Know Before You Owe TRID Rule and Class Action Risks Class action risks higher because of uniformity of LE and CD This uniformity could make it easier to identify class members and create viable class definitions Technical rules potentially violated are clear which could aid the plaintiff s bar in bringing class claims

14 CFPB Know Before You Owe TRID Rule and Class Action Risks Should carefully review Director Cordray s December, 29, 2015 letter to Mortgage Bankers Association regarding TRID liability

15 CFPB Proposed Rule To Ban Class Waivers October 7, 2015 proposed rule to ban class action waivers in arbitration clauses Make it illegal for consumer financial services contracts to contain class waivers Rule impacts banks, lenders, credit unions, small loan lenders, money transfer companies, auto lenders, private student loan lenders, and others

16 CFPB Proposed Rule To Ban Class Waivers Rule only proposed, not final Rule as a result of CFPB study and report finding that 75% of consumers surveyed unaware of arbitration clause/class waiver issue Report concluded that consumers benefit from class-action lawsuits more than arbitration results

17 CFPB Proposed Rule To Ban Class Waivers CFPB proposed rule and study heavily criticized by the financial services industry and academic and legal scholars Reliance on skewed data Sample audience not representative Survey questions leading to desired results

18 CFPB Proposed Rule To Ban Class Waivers Proposed Rule Next Steps? Public comment period CFPB garnering information from interested parties Industry Impact? Elimination of consumer products Rise in class action litigation Increased costs to consumers

19 Are You Compromise Ready? Craig A. Hoffman Partner, Cincinnati

20 Be Compromise Ready Threat information gathering Technology preventative & detective Personnel awareness & training Security assessments Understand where assets and sensitive data are located Implement reasonable safeguards Increase detection capabilities Vendor management Incident response plan and tabletop exercises Insurance Ongoing diligence and oversight

21 Victims By the Numbers Adapted from Mandiant s MTrends Beyond the Breach: 2015 Threat Report

22 Where to Improve? 2015 Trustwave Global Security Report

23 Regulatory Scrutiny Goes Beyond Just the Breach Is Your House in Order? Data collection, use, and sharing practices WISP Privacy Policy Vendors

24 Regulatory Hot Buttons Encryption of Portable Devices Patching Security Awareness and Training Two-Factor Authentication for Remote Access Ignoring Risk Assessments Slow Detection Slow Notification Repeat Offenders

25 Fee Awards in Class Action Settlements Karl Fanter Partner, Cleveland

26 In a certified class action, the court may award reasonable attorney s fees and nontaxable costs that are authorized by law or by the parties agreement. Fed. R. Civ. P. Rule 23(h).

27 Fee-Calculation Methods Lodestar Multiplier Percentage of Fund Potential Incentive Misalignment

28 Amendments to Rule 23?

29 Not addressing cy pres. Potentially streamlining process for objections. Potentially expanding fair, reasonable, and adequate.

30 Collusion may not always be evident on the face of a settlement, courts therefore must be particularly vigilant not only for explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations. In re Bluetooth Headset Prods. Liability Litig., 654 F.3d 935, (9th Cir. 2011).

31 The relief that this settlement provides to unnamed class members is illusory. But one fact about this settlement is concrete and indisputable: $2.73 million is $2.73 million. In re Dry Max Pampers Litig., 724 F.3d 713, 721 (6th Cir. 2013)

32 This is a case in which the lawyers support the settlement to get fees; the defendants support it to evade liability; the court can t vindicate the class s rights because the friendly presentation means that it lacks essential information. Eubank v. Pella Corp., 753 F.3d 718, 729 (7th Cir. 2014)

33 The settlement, a selfish deal between class counsel and the defendant, disserves the class. Class counsel shed crocodile tears over Rexall s misrepresentations.... Yet only one-fourth of one percent of these fraud victims will receive even modest compensation, and for a limited period the labels will be changed, in trivial respects unlikely to influence or inform consumers. And for conferring these meager benefits class counsel should receive almost $2 million? Pearson v. NBTY, Inc., 772 F.3d 778, 787 (7th Cir. 2014)

34 [A]ttorneys fees don t ride an escalator called risk into the financial stratosphere. Redman v. RadioShack Corp., 768 F.3d 622, 633 (7th Cir. 2014)

35 Other Recent Issues If large disparity exists between requested and final awards, court should justify disparity. Stanger v. China Elec. Motor, Inc., No (9th Cir. Jan. 15, 2016). Impact of coupons on fee awards. In re Southwest Airlines Voucher Litig., Nos et al. (7th Cir. Aug. 20, 2015).

36 Key Issues to Consider Injunctive relief sometimes overvalued to justify attorneys fees. Coupon settlements CAFA requires the portion of any attorney s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed. 28 U.S.C. 1712(a). Cy pres some courts will not include this as class benefit weighed against attorneys fees.

37 Key Issues to Consider Claims-made settlement measuring fees based on the highest possible as opposed to the actual or likely settlement value may be improper. Clear-sailing and kicker agreements sometimes viewed as evidence of conflict. Fee motion timing improper in some courts to file after objection deadline.

38 Practical Advice Negotiate fees after class relief. Emphasize attorney skills and innovative settlement terms. Compare awards in similar cases. If possible, emphasize absence (or near absence) of objectors.

39 Settling with Objectors Pre-judgment: court must approve withdrawal. Fed. R. Civ. P. 23(e)(5). Post-judgment: private, side settlements are permissible and unlikely to be reviewed. Duhaime v. John Hancock Mut. Life Ins. Co., 183 F.3d 1 (1st Cir. 1999).

40 Q&A Please your questions to:

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