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Class Action Lawsuits are Great for…Lawyers

By JLP | December 28, 2010

My wife and I received a mailing recently informing us that we are eligible to receive a portion of a settlement with Bank of America. How much do we stand to receive? Well…

There is a common fund of $9,950,000 to pay all Class Member claims and the costs and fees of the case. If the settlement is approved, and you submit a complete and timely Claim Form in the manner described below, you will be able to receive money from the common fund. The amount you will receive will depend on how many other Class Members submit claims. For example, if 15% of Class Members submit claims, you will get approximately $14. If 10% submit claims, you will get approximately $21. If 2% submit claims, you will get $100. If all Class Members submit claims, you will get at least $2. Eligible Class Members are entitled to one payment per loan transaction during the class period. Eligible Class Members may not receive payment of more than $100 per loan transaction during the class period.

The mailing conveniently left out HOW many class members there are in the suit. After doing some digging (you can too, just visit www.creditscoresettlement.com), I found that the law firm’s take is roughly 24% or $2.38 million of the common fund. So, of the $9.95 million pot, $7.562 million is left over for the “victims” in the case. If 15% of the claimants participate in the suit, each claimant gets $14. Dividing $7.562 million by $14, gives us 540,143 participants, which represents 3.6 million total claimants (divide 540,143 by .15).

If ALL claimants participate in the suit, each claimant gets a whopping $2!

All this leads to me wonder: what’s the point of the class action lawsuit? Here is what the website provides as the reason for this class action lawsuit:

Background Facts:

During the class period, when Bank of America received an application for a mortgage loan or home equity transaction, its practice was to obtain the consumer’s credit score from a credit reporting agency. For home equity transactions, Bank of America prepared and then mailed the required credit score disclosures when its computer system indicated that a decision was made on the loan. The average time between application and those decisions during the class period was approximately five days. For home equity transactions that closed, the disclosure was not sent before the closing. For other mortgage loans, Bank of America automatically prepared the credit score disclosure when the score was received, and sent the notices at least four days later.

What the Plaintiffs Alleged:

Plaintiffs claimed that the delays in sending the required credit score disclosures to applicants violated the Fair Credit Reporting Act because they were not sent as soon as reasonably practicable, as required by 15 U.S.C. § 1681g(g). Plaintiffs sought both statutory and punitive damages, in addition to injunctive and declaratory relief.

I think the purpose is to enrich the lawyers. This particular case is small as $2.38 million is mere change to a big law firm. However, the real victims in this case are the bank’s customers who will have to pay more in fees and charges to cover the costs of the lawsuit (afterall, the money has to come from somewhere).

Class action lawsuits are nothing but a wealth transfer mechanism from companies to lawyers and the customers end up footing the bill.

Topics: Miscellaneous | 23 Comments »


23 Responses to “Class Action Lawsuits are Great for…Lawyers”

  1. Veritroth Says:
    December 28th, 2010 at 4:25 pm

    I wish I knew more about the subject, but I wouldn’t be surprised if BOA had a pool of funds for these lawsuits. Also, I wouldn’t be surprised if they could write off the losses come tax time as well.

    Regardless, you’re most likely correct that BOA will try to push at least some of the costs on to their customers. But what, pray tell, is stopping the bank’s customers from banking somewhere else? So yes, I agree, that the customers were/are the victims but not in the sense that they will have to pay higher fees, but rather because the bank broke the law when dealing with them in the first place.

    Either way, I don’t see how this is a “wealth transfer mechanism” or some grand conspiracy to enrich lawyers. It’s not like the lawyers forced BOA to break the law; they’re just doing what any good capitalist would do–profiting from it.

  2. JLP Says:
    December 28th, 2010 at 5:42 pm

    It is a wealth transfer. $2.38 million is going from Bank of America to lawyers who are exploiting some law and behalf of “victims.”

  3. Veritroth Says:
    December 28th, 2010 at 6:04 pm

    “Exploiting some law”

    Clearly the judge doesn’t agree or he would have thrown out the case.

    How do you feel about the cases where the class-action lawyers lose the suit and don’t get paid anything?

    Also, I hope your have just as strong of an opinion about all the laws that BOA “exploited” during the housing crisis. For example, a homeowner pays his mortgage on time for 10 years but then is late on a payment. He still sends in the money, but now a fee is added for being late. The next month when he goes to pay his mortgage on time, the bank applies his money to the fee first and then the rest to the mortgage, coming up short by the amount of the fee. This, in turn, causes another fee unbeknownst to the homeowner. This continues for several more months until the bank files a NOD and kicks the homeowner out. Do you view situation in the same light?

  4. JLP Says:
    December 28th, 2010 at 6:16 pm

    If the bank is truly breaking the law, then sue. This case was bunk. A law firm looks deep enough they’ll find something to sue over.

    Regarding your story, I have had mishaps in the past. For instance, one time I didn’t enter the decimal correctly and sent 10% of my payment. The bank kicked it back, making my payment late. I called the bank, explained the error, they refunded the late fee and everything was fine. Not sure why this guy didn’t call and explain his problem. Keep in mind that these issues are usually due to computer programs.

  5. Cathy @ Chief Family Officer Says:
    December 28th, 2010 at 7:13 pm

    In general, the purpose of class action lawsuits is to deter the behavior of the entity being sued. Lawyers make a lot off class actions because they’re expensive to prosecute and because they get nothing if they lose. 30% contingency fees in personal injury cases are common, so the lawyers’ take in this case is reasonable when you think of it that way.

    As a consumer, I’m perfectly happy to participate in these class action suits because I’d never invest the time or money to pursue a suit on my own. I get very little, but I’d have gotten nothing if not for the efforts of others on behalf of the class. At least the class actions that I’ve been a party to have been for actions that the company in question really shouldn’t have been doing.

  6. Kirk Kinder Says:
    December 28th, 2010 at 9:03 pm

    What is ironic is Google adwords picks up on the words lawsuit and lawyer and loads up with links to class action lawsuits. I guess the Google spiders aren’t as intelligent as we think.

  7. hal p Says:
    December 29th, 2010 at 1:01 am

    By the logic of this post, JLP would support a bank screwing customers over by stealing an amount of money that is less than what it costs to litigate it. Class action lawsuits of this nature are to make sure that banks don’t violate the law below the threshold of any one customer litigating the matte.r

    This is an incredibly ignorant post that is disrespectful to class action attorneys. Really just deplorable.

  8. JLP Says:
    December 29th, 2010 at 1:11 am

    Hal,

    I’m guessing you are a class action lawyer.

    What was it about my post that leads you to believe I think it’s okay for a company to screw people? Nothing could be further from the truth. Your comment is incredibly ignorant towards me.

  9. Curtis Says:
    December 29th, 2010 at 8:22 am

    The problem with the “class-action suits are supposed to deter future action” argument is that very frequently by the time lawsuits are settled or decided, the action of the company has already changed — and usually not because of the suit.

    I don’t know when the class period for this case was, but in the last couple years Bank of America has changed many of its policies and procedures related to mortgages and home equity loans/lines. Also, it’s possible that many of the members of the class in this suit originated loans through Countrywide, rather than Bank of America. My guess is that if anything has changed, it’s because of the merger and other recent changes, rather than because of this lawsuit which cost a few million dollars (vs. the $72 BILLION dollars in loans that they generated in Q3 2010 alone — google it).

    I’m with JP on this one. This lawsuit was about getting money for lawyers, not about forcing a big bank to change its practices.

  10. Matt Says:
    December 29th, 2010 at 8:34 am

    JLP,

    I think your point depends on whether you take issue with class action lawsuits in general, or this one in particular. I agree with you if it’s the latter; it seems like a money grab to me, too. In general, though, I’d be kind of surprised if you have a problem with class action lawsuits as a legal instrument. They prevent a death-by-a-thousand-cuts demise for a company when 10,000 people could sue for the exact same reason, and they also keep the courts from being burdened with thousands of individual lawsuits.

  11. Veritroth Says:
    December 29th, 2010 at 8:37 am

    How do you feel about the cases where the class-action lawyers lose the suit and don’t get paid anything?

    JLP, still waiting for an answer.

    “The problem with the “class-action suits are supposed to deter future action” argument is that very frequently by the time lawsuits are settled or decided, the action of the company has already changed — and usually not because of the suit.”

    Two things wrong with this. One, this is absolutely baseless opinion and carries no weight. Two, it wouldn’t matter even if it were true as the company broke the law and it’s irrelevant whether they changed their policies after the fact. They still broke the law. This would be similar to me parking in a handicap spot, getting a ticket, and then asking the judge to drop it because I changed my behavior and will no longer be parking in handicap spots.

    But the biggest issue of all is that the bank’s customers are not required to continue banking with BOA. Go somewhere else. Vote with your checkbook.

  12. Veritroth Says:
    December 29th, 2010 at 9:13 am

    Going along with my story from earlier, here’s a couple that are being foreclosed upon even though they didn’t miss a single payment:

    http://ctwatchdog.com/2010/12/24/bank-of-americas-christmas-present-foreclose-even-though-not-a-payment-missed

    And let’s not forget the Massachusetts couple that had their house foreclosed upon even though they paid cash for the entire thing:

    http://www.tampabay.com/news/business/realestate/bank-of-america-forecloses-on-house-that-couple-had-paid-cash-for/1072632

    BOA is clearly too large to manage itself. It should have never been bailed out to begin with. Instead, we still have a bank that’s “too big to fail” and yet JLP is complaining that lawyers are the evil ones. :)

  13. Grace Says:
    December 29th, 2010 at 10:59 am

    I just got a check for $21.45–my portion of a lawsuit settled by Best Buy and MSN. It was my share from a lawsuit that I never would have brought on my own, even though I clearly got screwed by both Best Buy and MSN. (I was charged for internet service that I never used, a year after I purchased a computer that came with a ‘free’ MSN membership. I got no notice of the upcoming ‘renewal,’ which was charged to the credit card used to purchase the computer. I called and tried to get MSN to remove the charges but they wouldn’t.) Why should Best Buy and MSN get away with this, just because the amount of loss is so small, no one would bother to sue? Frankly, I’m grateful that someone was smart enough to bring a class action against them, and I’m very grateful to be sharing in the proceeds.

    I think you’re on the wrong track here, JLP.

  14. JLP Says:
    December 29th, 2010 at 11:36 am

    Veritroth wrote:

    “How do you feel about the cases where the class-action lawyers lose the suit and don’t get paid anything?”

    I’d say make the loser pay the defense’s legal fees too and you have a deal.

    Also, with regards to comment #12, I fail to see how either of the stories you mention have anything to do with my post.

    For the record, I was not a fan of the bailouts: Let People (and Companies) Fail.

  15. Veritroth Says:
    December 29th, 2010 at 12:19 pm

    They are relevant because you stated that a simple phone call will set things straight when the bank screws up. In both the cases, the homeowners did nothing wrong, yet BOA, even after acknowledging their mistake, did nothing to correct the problem. They then went on to *exploit* the law and destroy the homeowner’s credit rating, finally kicking them out of their house.

    If you read that previous post (link didn’t work for me) you devote *one* paragraph to mentioning companies. And even then, it’s not about the companies but the people running them. It seems to me, and please clarify if I’m misreading, that you are much more critical of individuals than you are of companies, especially banks. If I didn’t know any better, I’d say you must be a banker.

  16. Veritroth Says:
    December 29th, 2010 at 12:23 pm

    Wait a minute, I just checked your About Me section (first time) and it appears you were/are in the industry. Haha, that explains a lot. What do you do on your own now?

  17. JLP Says:
    December 29th, 2010 at 12:36 pm

    If you have read this blog over the last 3 or 4 years, you will know that I have been critical of companies and some of their practices.

    I did not say that a simple phone call would have fixed the problem. What I did say was the “simple phone call” fixed MY problem and I was curious as to why it didn’t fix this person’s problem.

  18. Veritroth Says:
    December 29th, 2010 at 2:12 pm

    Yes, and now you have your answer why the phone calls didn’t fix the problem. The banks don’t care about their customers, they only care about what’s in their best interest–making money–even if it means breaking laws.

    For the record, I’m not saying they have to care, just that it’s morally reprehensible to kick someone out of their house and sell their possessions when they did *nothing* wrong. I was hoping you’d see the hypocrisy of banks arguing morality when it comes to strategic defaulting, yet turning a blind eye when it comes to their own moral repugnant practices.

  19. BG Says:
    December 29th, 2010 at 4:38 pm

    Lawyers get rich, companies change their policies. I think this lawsuit is pretty absurd; but, in a free-market world, class-action lawsuits seem to be one of the best ways to ensure companies are meeting the letter of the law. It doesn’t put a strain any one citizen to bring the lawsuit to trial, and the courts aren’t burdened with thousands of similar suits.

    I can think of no better alternative to class-action lawsuits. Though I hope the court (ie; taxpayer) gets a nice chunk of that settlement too, since it was a federal law that the company was violating.

    Punitive damages should go to the state, not the ‘victim’.

  20. Evan Says:
    December 30th, 2010 at 11:43 am

    JLP,

    While you may not agree with this particular class action, but what about other class action suits which changed America. I don’t have the links handy but these suits include the Tobacco industry finally admitting they lied about their product, the abestos cases which claimed the lives of thousands of workers (and now we don’t use it), there are multiple discrimination class action cases…

    Yes, I am a lawyer, but not a litigation one nevertheless a class action lawyer. For every stupid slip and fall case there is a doctor who left a sponge inside of someone or operated on the wrong organ.

  21. JLP Says:
    December 30th, 2010 at 2:18 pm

    Evan,

    Yes, I know about Richard Scruggs and William Lerach. Both of them were quick to talk about corporate greed and now both are serving prison terms for their own greedy attempts to make more money. Apparently the $340 MILLION that Scruggs’ firm made off the tobacco litigation wasn’t enough…

  22. hal p Says:
    January 1st, 2011 at 10:48 pm

    no i’m a corporate lawyer who defends against class action lawsuits like the one you mention here. the point of the “negative expected value” lawsuits is to remedy behavior that is illegal but below the threshold of covering the costs of a single victim legally pursuing the claim.

    if they are frivolous suits, courts are fairly strict on throwing them out. the 24% fee is actually on the low end of these sorts of suits. loser pays makes sense for frivolous suits, but there is no sign that this is frivolous at all.

    if you were entitled to $200 due to a disclosure violation, and it cost you $10,000 to pursue it, which is fairer: (1) you get $50, lawyer gets $150, company gets $0; or (2) company gets $200, you get $0, violation goes uncompensated? your argument literally undermines the entire class and mass action litigation system simply because you think they “enrich” lawyers. i’m offended and i think it shows you really are out of your element here, JLP.

  23. Curtis Says:
    January 6th, 2011 at 10:41 am

    @ Veritroth

    “Two things wrong with this. One, this is absolutely baseless opinion and carries no weight.”

    It’s not baseless, though I’ll admit that it’s not a given ether. I’ve been through enough mergers and reorganizations in my own company to know that policies, procedures, technology and personnel are constantly changing. There is far more likelihood that, in the several years it took for this lawsuit to go through, the company changed it’s policies and procedures (perhaps several times) than it is that those policies and procedures remained static — especially in light of the several large mergers that have taken place at Bank of America and the many regulatory changes that have happened over the last few years.

    “Two, it wouldn’t matter even if it were true as the company broke the law and it’s irrelevant whether they changed their policies after the fact.”

    Straw man. I was responding to the above argument that lawsuits are intended to make companies change practices. I’m merely saying that policy change is often a poor motivation for lawsuits. I don’t disagree that companies should be punished for doing things that are illegal (well, except for when the illegal thing shouldn’t be illegal…).

    That said, the whole point of settling the case is that there is no admission of guilt and no determination of illegal conduct. You stating that they need to be punished for doing something illegal is, ironically, baseless, since by definition illegality has not been determined.

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